COMMISSIONER OF INCOME TAX KARNATAKA CENTRAL BANGALORE Vs. TRANSPORT CORPORATION OF INDIA LIMITED SECUNDERABAD

JUDGEMENT

(1.) In these Referred Cases, the Income Tax Appellate Tribunal, Hyderabad Bench - B, has referred the following questions of law to this Court under Section 256(2) of the Income Tax Act, 1961 (for short `the Act') at the instance of the Revenue arising out of the orders made by the Income Tax Appellate Tribunal, Hyderabad, Bench-B for assessment years 1981-82 to 1984-85.

(2.) The facts of the case be noted first: The assessee, viz., M/s. Transport Corporation of India Limited, Secunderabad is one of the largest Cargo movers in the country and it has more than 600 branches scattered throughout the country during the relevant previous years. According to the assessee, the business of transport of goods is highly competitive and in order to survive in the business and sustain the regular business flow, it had to pay commission to the employees of the contracting parties - customers as an inducement to garner more business. During the course of assessment proceedings, the assessee claimed that it paid commission called "secret commission" to the employees of the customers as an inducement for granting business to the transport operators and such a practice is well known practice in the transport business and, therefore, the "secret commission" paid by them is allowable under Section 37(1) of the Act. The claim of the assessee was not allowed by the Income Tax Officer and according to the Income Tax Officer, the "secret commissions" claimed to have been paid by the assessee was imaginary and false and there is no evidence to substantiate the claim. The Income Tax Officer in view of that factual finding and also placing reliance on the judgment of this Court in CIT v. Kodandarama and Company and others and judgment of the Bombay High Court in Goodlas Nerolac Paints Ltd. v. CIT disallowed the claim of the assessee. The assessee being aggrieved by the order of the Income Tax Officer preferred appeals before the Commissioner of Income Tax (Appeals) who, in turn, agreeing with the factual findings recorded by the Income Tax Officer and placing reliance on the judgments of this Court in CIT v. Kodandarama and Company and others (supra 1) and that of the Bombay High Court in Goodlas Nerolac Paints Ltd. v. CIT (supra 2) dismissed the appeals and confirmed the assessments made by the Income Tax Officer. While doing so, the Commissioner also held the "secret commission" claimed to have been paid by the assessee is opposed to public policy. The assessee being aggrieved by the order of the Commissioner of Income Tax (Appeals) preferred further appeal to the Income Tax Appellate Tribunal (for short, `the Tribunal'). The Tribunal having noticed that the Income Tax Officer had allowed the expenditure incurred by the assessee towards `Secret Commission' under Section 37(1) of the Act till the assessment year 1981-82 and it was only from the assessment year 1981-82, the Income Tax Officer chose to disallow the secret commission paid by the assessee and since it did not find any change of circumstances after assessment year 1981-82, allowed the appeals in part.

(3.) Sri S.R.Ashok, learned Senior Standing Counsel for the Income Tax Department assailed the validity of the opinion of the Tribunal by contending that in the first place, the assessee had utterly failed to place any satisfactory materials and evidence before the assessing authority to show that as a matter of fact, it paid secret commission as claimed by it during the relevant assessment years and that the Tribunal had wrongly placed the burden on the department. The learned counsel contended that it is well settled that when an assessee claims disallowance under Section 37(1) of the Act, it is his or its burden to prove that the payment was made by him or it. The learned Standing Counsel contended that the alleged payment made by the assessee company is opposed to public policy and therefore, not allowable under Section 37(1) of the Act. The learned Standing Counsel contended that the judgment of this Court in CIT v. Kodandarama and Company and others (supra 1) and judgment of the Bombay High Court in Goodlas Nerolac Paints Ltd. v. CIT (supra 2) clinch the controversy as regards the questions referred to this Court and that the questions have to be answered in favour of the revenue and against the assessee in the light of those judgments.