V.R. Prabhakaran Nair vs Commissioner of Income Tax

V.V. Kamat, J.—IT Ref. 178 relates to the asst. yr. 1974-75 and gets concern in regard to the contention relating to an amount of Rs. 78,204, as to whether the said amount consists of commission received by the assessee or is in the nature of a loan. In the similar way, IT Ref. No. 179/86 also relates to the asst. yr. 1976-77 and a similar contention with regard to an amount of Rs. 45,000. Both are payments from M/s. Greenfield Distributors, Bombay. The question referred is as follows :

Is the reasoning and conclusion of the Tribunal to hold that the sum of Rs. 78,204 for the asst. yr. 1974-75 and Rs. 45,000 for the asst. yr. 1976-77 paid to the assessee by M/s. Greenfield Distributors, Bombay, represent commission payments valid and justified ?

Obviously, the question requires this Court to see as to whether these amounts validly and justifiably represent commission payments and not the loan amounts as contended.

Apart from the position that the question does not spell out any question of law as required for us to exercise our powers, all the three authorities have consistently held that the amounts represent commission for sale.

Learned counsel took us through all the three orders and after hearing him, in our judgment, there is no reason to come to any other conclusion although the situation represents pure and plain question of fact.

The ITO by his order dt. 28th February, 1979 has referred to a notice under s. 133A required to be served on the assessee in pursuance of which a sworn statement dt. 2nd March, 1978, was recorded containing a clear and unequivocal admission that there was an understanding between the assessee and the company to give royalty at 5 per cent of the net profit for each year and in fact 2-1/2 per cent of the profit was given to the assessee. It is further stated that the amounts in regard to this, the subject-matter of these references were received by cheques and drafts particularised in the order. It is further held that the contention that the amount is received from the Greenfield Distributors, Bombay as a loan appears to have been taken up and found to be so only when the assessee received a notice when the said amount was not included in the return.

Even the first appellate authority in its order dt. 25th March, 1982 has, in fact, reproduced the entire text of the statement and with benefit is reproduced hereinafter :

Greenfield Proteins (P) Ltd., is the manufacturing concern for Baby Foods, nourishing food and cattle feed. I do not remember the trade name of the products in the company and I do not also remember the raw materials used in the manufacture. One Mr. Chimanbai a leading businessman of Bombay is a friend of mine and I introduced the above firms products to Mr. Chimanbai in the year 1970. The major sales are done at Bombay through Mr. Chimanbai. The understanding between me and company was to give a royalty, it being not reduced in writing neither there is an agreement, except oral. The understanding was to give me 5 per cent of the net profit for each year, but in effect 2-1/2 of profit was given to me. I received it by cheque and draft. I have cashed these amounts through my bank account-State Bank of Travancore, Ettumanoor. My account No. is SE 3427 opened on 12th June, 1972. The passbook is not available with me, another passbook No. C-3726 dt. 25th April, 1975 is shown to you in which there is deposit of Rs. 45,000 on 2nd May, 1975, another deposit on 4th September, 1975 Rs. 1,000, 19th January, 1975 Rs. 1,000 and other petty credits. Balance on 27th June, 1977 is Rs. 357.20. There is no further transaction in that company D/D No. 4/753 on Bank of India, Kottayam Branch; Rs. 1,000 DD No. 78400 drawn on State Bank of India, BARC, Bombay represents cash received from my daughter. I have a current account in which receipt of commission has not been credited in the Steel Made account. But, I have paid Rs. 34,175.33 on 7th April, 1957 to the Kerala Financial Corporation towards loan repayment of Steel Made Industries on which the proprietor. An amount of Rs. 6,500 also been appropriated towards repayment of loan of the above concern from the draft amount. I have not separately accounted for these commissions in my account book. All transactions reflects in my pass book. The details of withdrawals most of them related to personal use and payment of loans, etc. I have not separately accounted for these commissions in my account book. All transactions reflects in my pass book. The details of withdrawals most of them related to personal use and payment of loans etc. I have received only two amounts by way of commission in the year 1971 and another in the year 1975 which is reflected only in my pass book. After 1976, I have visited Bombay 6 or 7 times during which time, I used to contact business associates and commission business. Though I do not have any technical qualifications for the manufacture of the above products I have sufficient knowledge of the manufacturing process. I am well versed with salesmanship such as Hardware building materials and food products. I was sales agent for M/s. Pachal Textiles during the year 1967-68. Now, I am not engaged in the sales agency.

The statement would show that on oath it is stated that the amounts are received under an oral agreement by way of a commission at 2-1/2 per cent profit and there was an oral agreement to receive the sum at 5 per cent of the net profit for each year.

No wonder that the first appellate authority endorsed the reasoning that the two sums were received as commission from M/s. Greenfield Distributors, Bombay, for procuring orders for the firm.

In addition, the first appellate authority in paragraph 5 of its order has agreed that the CIT(A) in the assessment proceedings of M/s. Greenfield Distributors allowed the payment of commission by its order dt. 8th January, 1981 - No. : 2112/Bom/1979 and it is recorded that even the Departments appeal came to be dismissed. The first appellate authority has in fact recorded the findings of the Income Tax appellate order.

The assessees further appeal to the Tribunal, Cochin Bench, also received the same fate, finding that the Bombay Bench of the Tribunal has considered the nature of these payments in the case of the Bombay firm M/s. Greenfield Distributors treating them as commission payments.

Learned counsel emphasised that the Tribunal has based its decision only referring the proceedings of the Tribunal of the Bombay Bench.

In the face of the statement of the assessee which is recorded on oath and bodily taken out from para 5 of the first appellate order and reproduced hereinabove, the said sworn statement shows admission that the amounts are received towards commission agreed with Mr. Chimanbhai of M/s. Greenfield Distributors, Bombay. Therefore, apart from the situation that no question of law arises, even on facts it would be next to impossible to arrive at any other conclusion than the conclusions recorded by the three authorities below.

For the above reasons the question is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.