COMMISSIONER OF INCOME TAX Vs. BHARAT COLLIERIES LIMITED

JUDGEMENT

(1.) In this case the Income-tax Appellate Tribunal was asked by this court to state a case, under section 66(2) of the Indian Income-tax Act, on the following question :

(2.) The Tribunal further found, on a perusal of the correspondence produced by the assessee, that they (the assessee) had agreed to pay Messrs. Republic Chemical Corporation Japan Ltd. commission of 1.723 U. S. A. dollars per ton of coal supplied to the Headquarters, Japan Procurement Agency, Yokohama. This rate was also found by the Tribunal to be in accord with the normal commercial transaction, although the rate was high. In that view, the Tribunal allowed the entire claim of the assessee about payment of commission on sale of coal in Japan under the two contracts. It is to be mentioned that the first contract stipulated for a rate of commission of 9.5 per cent., whereas in the second contract the commission rate was three per cent. The revenue wanted the Tribunal to state a case in regard to the allowing of commission in excess of three per cent. but since the Tribunal refused to state the case, the revenue obtained a rule from this court.

(3.) Learned counsel appearing for the revenue contended that, since the assessee entered into Japan market for supply of coal to the Headquarters, Japan Procurement agency, Yokohama, for the first time, they had to agree to pay a higher rate of commission to their agent in Japan, the Republic Chemical Corporation Japan Ltd. In that view, the learned counsel contended, the whole payment of commission at the rate of 9.5 per cent. under the first contract cannot be said to be incidental to carrying on business of the assessee or an integral part of the profit earning process in the (assessees) business. The high rate of commission, according to him, was paid partly for securing an advantage of enduring character, inasmuch as, by such payment of high commission, the assessee was able to have a new market outside India for supply of their coal. No doubt, the first contract, dated the 30th of June, 1952, was the first business that the assessee secured in Japan market and their agent in Japan was responsible for securing that order, inasmuch as they (the agent) had submitted the tender for the assessee to the purchaser-company, but there was nothing by way of advantage of any enduring benefit in that transaction; neither the assessee obtained any monopoly rights nor any abnormal concessions in regard to the supply of coal in that country or to their purchasers. It was nothing more than securing an order for supply of coal from a customer which was, in the ordinary course, a business of the assessee. It was neither an extension of their business nor any exclusive rights in regard to supply of coal in that country. The assessees were carrying on the business of supply of coal in this country and in normal course, through the help of their agents, they approached customers and secured their orders from time to time. The activity that resulted in the first contract, dated the 30th of June, 1952, in Japan, was in no way different from the activities of the assessees business in this country. The mere fact that a customer was found outside the country will not make any difference in the nature of expenses incurred in payment of commission to the assessees agent in Japan or in this country. It is a normal practice in the commercial world to yield to a high rate of commission or to grant special rates of sale in certain cases, e.g., in the case of a first customer in a particular area. These things are conceded as the seller wants to here access to other customers through his first transaction in a particular area or place.