GANESH SOAP WORKS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee to answer the following question of law, namely :

(2.) THE assessee is a partnership firm comprising of three partners, Jhaku Bai, Smt. Narbada Bai and Smt. Rama Bai. Jhaku Bai is the main partner whose share in the partnership is one-half. It is claimed by the assessee that an amount of Rs. 66,930 was paid to Smt. Pushpa Rathore, wife of Jhaku Bhai, as sole proprietor of a selling agency towards commission at the rate of nine per cent. on the sales effected by the assessee. It was claimed that this commission of nine per cent. was deducted in the bills of sales made by the assessee showing the same as commission paid to Smt. Pushpa Rathore. This amount was claimed as a deduction towards business expenditure by the assessee. THE Income-tax Officer held that Smt. Rathore being the wife of the main partner of the assessee-firm and hardly having any capital in the business and also being neither educated nor trained to carry on the business, the provision of Section 40A(2)(a) of the Income-tax Act was attracted and, therefore, the deduction claimed could not be allowed. In short, it was held that the commission which was claimed as business expenditure did not satisfy the test of commercial expediency and it could not be allowed as a permissible deduction. THE Commissioner of Income-tax (Appeals) partly accepted the assessee's contention to the extent of four per cent. only which had been actually paid while making the sales and, therefore, deduction as business expenditure was allowed only to the extent of Rs. 26,500. THE Tribunal has upheld this view of the Commissioner and hence this reference at the instance of the assessee in respect of the remaining five per cent. of the alleged commission which has been disallowed as permissible deduction.

(3.) LEARNED counsel for the assessee placed reliance on a decision of this court in CIT v. Udhoji Shrikrishnadas [1983] 139 ITR 827. This case is clearly distinguishable on facts. In that case, the finding of the Tribunal was that there was a real sole selling agency and the expenditure incurred by way of commission paid to the sole selling agents resulted in benefit to the business. The finding of the Tribunal in the present case is contrary to this decision and has, therefore, no application.