COMMISSIONER OF INCOME TAX Vs. HEWITT ROBINS

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to us :

(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,000 paid to M/s. Voltas Ltd. was allowable expenditure in computing the profits and gains of the assessee's business ? " 2. This reference is in respect of the assessment year 1965-66. The assessee is a company incorporated in the U.S.A. in 1904 under the laws of the State of New York. While engaged in the business of execution of contracts the assessee extended its business activities to India. It entered into, among others, one contract with the Orissa Mining Co. for erection of a ship loading plant at Paradeep Port and another contract with Neyveli Lignite Corporation for erection of a conveying plant at Neyveli. In the assessment for the assessment year under reference the assessee claimed deduction of two amounts, namely, Rs. 71,400 and Rs. 1,19,000 paid to M/s. Tata Robins Fraser Ltd., an Indian company, and of a sum of Rs. 50,000 paid to M/s. Voltas Ltd., another Indian company. The assessee claimed to have paid those amounts to those two Indian companies as commission for the assistance rendered by them in securing the above-mentioned two contracts for the assessee-company. The payment of those amounts was claimed to be a deductible business expenditure. Along with a letter dated the 13th March, 1968, the assessee forwarded to the ITO a copy of the statement placed before the Board of Tata Robins Fraser Ltd. on February 7, 1964. The ITO held that it was evident from that statement that the assessee had agreed to pay the amount to Tata Robins Fraser Ltd. for its assistance in obtaining Paradeep and Neyveli contracts and as a result of the payments it had got an asset or advantage of an enduring nature in the form of right to execute contracts. With regard to the payment of Rs. 50,000 to M/s. Voltas Ltd. the ITO took a similar view. The ITO accordingly treated all these expenditures as capital in nature and disallowed the claim of the assessee.

(3.) Being aggrieved, the assessee went up in appeal before the AAC. For the reasons mentioned by him, the AAC upheld the finding of the ITO.