(1). This is a reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1985-86, at the instance of the Commissioner of Income-tax, West Bengal-Ill, Calcutta. The Income-tax Appellate Tribunal, Calcutta, has referred the following two questions for answer to this court : " (1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that commission of Rs. 5,00,000 paid to IPCO Trading Company was for the purpose of business is based on any relevant material or arbitrary and thereby deleting the disallowance of Rs. 5,00,000 made in the assessment ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the consultancy fee of Rs. 7,50,000 paid by the assessee to Sri N. K. Tapuriah, a director of the company did not fall within the purview of Section 40(c)(i) of the Income-tax Act, 1961, and thereby deleting the addition of Rs. 6,48,000 made in the assessment ?"
(2). The facts giving rise to the above two questions are these that under an agreement the assessee-company, viz., R. M. Investment and Trading Co. (P.) Ltd., was to render consultancy services to Boeing Company of USA for promotion of their sales of various types of Boeing aircraft in India. In return, the assessee was to receive commission on sale of such aircraft. The USA company used to remit a substantial amount to the assessee-company as service charges to meet various overhead expenses for canvassing sales of their aircrafts. The service charges were to be adjusted against the commission due on sale but the service charges received by the assessee were not liable to be refunded to the USA company even if there was no sale of any aircraft in a particular year. During the relevant assessment year, the assessee received service charges as in the assessment year 1984-85 and claimed expenses against the receipt as in that year. The Assessing Officer disallowed the claim. On appeal both the learned Commissioner of Income-tax (Appeals) and the Tribunal upheld the claim of the assessee. It is in this background the abovequoted two questions have been referred to us for answer.
(3). Learned counsel appearing for the Department argued that the sum of Rs. 5,00,000 which was paid to IPCO Trading Company was in the nature of commission and, as such, it was not for the purpose of business and it was wrongly deleted by the appellate authorities.
(4). To appreciate the argument of learned counsel for the Department, it is necessary to extract the relevant clauses of the agreement which are as follows : " (4) That in consideration of the aforesaid services to be performed by IPCO, RMI shall pay to the former as under : (a) A sum of Rs. 40,000 (rupees forty thousand) per mensem commencing from the 1st day of May, 1983, till the termination of this agreement. (b) In case this agreement continues beyond the calendar year, 1983, a further sum of Rs, 5,00,000 (rupees five lakhs only) annually shall be paid by RMI to IPCO, in addition to the monthly amount of Rs. 40,000 (rupees forty thousand only) as stated in Clause 4(a) above. . . . (c) (ii) A further sum in respect of sale of Boeing 757 to the Indian Airlines Corpbration calculated at one per cent. of the amount of commission as and when received by RMI from Boeing Commercial Airplane Company. However, if the amount of total commission calculated as per Sub-clauses (i) and (ii) above exceeds Rs. 5,00,000, such excess amount shall be adjusted against the annual payment of Rs. 5,00,000 referred to in Clause 4(b) above."
(5). A perusal of the question referred to this court shows that we are required to find out whether the finding of the Tribunal that the payment of Rs. 5 lakhs to IPCO Trading Company was for the purpose of business is based upon relevant materials. A plain reading of Clause 4(a) shows that the assessee was required to pay a sum of Rs. 40,000 per mensem commencing from the first day of May, 1983, till the termination of the agreement in lieu of the services to be performed by the agents. Clause 4(b) further provides that in case the agreement continues beyond the calendar year, 1983, a further sum of Rs. 5 lakhs annually shall be paid by the assessee to IPCO Trading Company in addition to the monthly amount of Rs. 40,000 as stated in Clause 4(a).
(6). We have carefully considered the entire agreement and we find that the nature of payment of Rs. 5 lakhs to be paid to IPCO was for the purpose of business.
(7). Learned counsel for the Department urged that this Clause 4(b) should be read along with Clause 4(c)(ii) of the agreement which provides that if the commission paid to IPCO exceeds Rs. 5 lakhs, such excess amount will be adjusted against the annual payment of Rs. 5 lakhs referred to in Clause 4(b) above. Learned counsel on the strength of this clause further urged that the nature of payment of Rs. 5 lakhs, in fact, is commission and not for business purpose. For interpreting a document like this we have to see the other circumstances provided in the agreement. The agreement clearly provides that the sum of Rs. 5 lakhs which is to be paid annually to the IPCO Trading Company is in addition to Rs. 40,000 which is the service charge in case of continuance of the agreement beyond 1983 and this material alone shows that this payment was for the purpose of business. Another circumstance is that this payment of Rs. 5 lakhs is non-refundable and such payment is not dependent upon the transaction of sale. In view of the materials, we are of the view that there were sufficient materials before the authorities below while arriving at the fi
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nding that a sum of Rs. 5 lakhs paid to IPCO was for the purpose of business. We, therefore, answer this question in the affirmative and against the Department. Since the finding arrived at by the Tribunal is based on materials, such a finding cannot be held to be arbitrary. We, therefore, answer this question in the affirmative and against the Department. (8). So far as question No. 2 is concerned, it is admitted between the parties that it stands concluded by a decision in the case of CIT v. R. M. Investment and Trading Co. P. Ltd. In view of this, we answer this question in the affirmative and against the Department.