THONDEPU PHARMA DISTRIBUTORS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS application is filed by the assessee under section 256(2) of the Income-tax Act, 1961, seeking a direction to the appellate Tribunal to refer the following question of law to this court for opinion :

(2.) THE assessee is a partnership firm. THE assessment relates to the assessment year 1985-86. THE assessee claimed a sum of Rs. 1,26,000 as annuity payment to a trust, Balaji Trust. It was stated that one of the partners of the assessee-firm, T. V. Hanumantha Rao, entered into an agreement with Balaji Trust represented by Shri A. Parthasarathi. As per the terms of the agreement, he has agreed to hand over the distribution of goods manufactured by Sarabhai Chemicals and S. G. Pharmaceuticals to the assessee. It was also agreed to deposit not less than Rs. 9 lakhs with the assessee-firm at the interest rate of 24 per cent. per annum. In consideration of the said arrangement, Sri Hanumantha Rao agreed to pay annuity of Rs. 1,26,000 towards the use of trade name. THE said amount is required to be paid within three months after the end of each accounting year. THE agreement was in force for five years from April 1, 1984.

(3.) AGAINST the said order of dismissal of the first appeal, the assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal, after considering the records, came to a categorical conclusion that there was no evidence to support the claim of the assessee. The Tribunal found that there was no evidence to the effect that the agreement was executed on behalf of the assessee-firm and hence, it should be treated as the agreement entered into by Sri Hanumantha Rao in his individual capacity. Hence, the assessee-firm cannot claim the annuity payment by way of deduction in its hands. The Tribunal also considered the letter addressed by Sarabhai Chemicals wherein it was stated that Balaji Trust had expressed its difficulty in mobilising the funds and, therefore, with their consent Sarabhai Chemicals agreed to supply stocks from April 1, 1984. Therefore, it was a transaction between the assessee and the distributor to whom it directly supplied the material earlier. The Tribunal found that there was no evidence to establish the basis for transfer of distribution rights either in favour of Sri Hanumantha Rao or the assessee-firm. Accordingly, the Tribunal found that there was no basis for making payment on account of annuity. The Tribunal, accordingly, dismissed the appeal of the assessee by its order dated October 31, 1994.