COMMISSIONER OF INCOME TAX Vs. STATESMAN LTD

JUDGEMENT

(1.) The following question of law has been referred to this court by the Tribunal under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1984-85 : R. A. No. 279 (Cat) of 1990 :

(2.) Shortly stated, the facts are that the assessee-company is the owner of a well-known newspaper "The Statesman". In its return for the assessment year 1984-85, it claimed deductions of Rs. 1,57,65,878 and Rs. 1,53,88,321 as commission paid to sales agents and advertisement agents, respectively. The above deductions were allowed to the assessee by the Assessing Officer in the assessment made by order dated January 28, 1986. The Commissioner, on examination of the record of the proceeding, was of the view that the above claims were hit by the provisions of Section 37(3A) of the Act and twenty per cent. thereof should have been disallowed. He, accordingly, issued a show-cause notice asking the assessee-company to explain as to why the assessment made should not be revised as the same was erroneous in so far as it was prejudicial to the interests of the Revenue.

(3.) The assessee, in its detailed reply dated February 25, 1988, objected to the revision of assessment. It was explained that the sum of Rs. 1,57,85,876 was paid to selling agents on sale of publication. The newspaper was sold almost entirely through selling agents outside the publishing centres of Calcutta and New Delhi and through hawkers in Calcutta and Delhi. The selling agents outside Calcutta and Delhi have to make arrangement for expeditious and efficient distribution of the newspaper through hawkers. The commission is paid at a uniform rate to all selling agents to compensate them for the service of distribution and hawking. The selling agents apart from the above service of distribution are required to pay for the newspapers supplied to them during a month within 25 days of the following month irrespective of whether or not they have been able to collect the relevant amounts from their clients or hawkers. The newspaper thus saved the expenditure of maintaining a debt collection cell for recovering debts from individual readers whose numbers are legion. The prompt payment also ensures regular flow of working capital. Likewise, hawkers in Calcutta and New Delhi are paid commission for distribution of copies of the newspaper in the houses of the readers and interests.