Case Law Details
CIt Vs. Sayaji Industries Ltd (Gujarat High Court)- There were voluminous records suggesting that the LGDA is not only the sole selling agent of the assessee, but it also does not undertake any other task except to promote the sales of the assessee company. Additionally, the assessee has larger number of customers and the LGDA supports such customers and maintains its agents and branches across the country. In view of such complex set up, between the assessee and the LGDA, we are of the opinion that the Tribunal committed no error in accepting the entire commission paid to LGDA. In fact, as already recorded, CIT(Appeals) had restricted the dis-allowance made by the Assessing Officer from Rs.1.25 crores as claimed by the assessee to Rs.7.50 lakhs. Even with respect to some handful of customers, sales might have been made directly, but it cannot be stated that the LGDA was not entitled to commission qua the sales made to such agents. LGDA was the sole selling agent and was responsible for the promotion of sales. In the process, services rendered could not have been bifurcated as rightly done by the Tribunal vis-a-vis a handful of customers as against more than 2000 customers whose requirements the LGDA would be satisfying.
HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1277 of 2010
With
TAX APPEAL No. 1278 of 2010
COMMISSIONER OF INCOME TAX-IV
Vs
SAYAJI INDUSTRIES LTD
Date : 05/12/2011
ORAL ORDER
(Per: HONOURABLE MR.JUSTICE AKIL KURESHI)
Revenue is in appeal against the judgment of the Tribunal dated 16.12.2009. By the said common judgement, the Tribunal disposed of two cross-appeals, one by the Revenue and another filed by the assessee. Before taking note of the questions framed by the Revenue in these appeals, brief facts may be recorded.
Respondent-assessee is a company registered under the Companies Act and is engaged in the business of manufacturing maze products. For the year under consideration i.e. previous year to the relevant assessment year 1992-93, the assessee had claimed deduction of an amount of Rs.1.27 crores (rounded off) towards commission paid to the sole selling agent. The Assessing Officer disallowed the entire claim holding that the said sole selling agent had not rendered any service. The commission paid, therefore, could not be claimed deduction of.
The assessee carried the order of the Assessing Officer in appeal. CIT(Appeals), allowed substantial portion of the claim of the assessee and restricted the dis-allowance to Rs. 7.50 lacs which was the commission paid towards sale to eight different parties with respect to whom CIT (Appeals) believed that the assessee had not rendered any service. The order of the CIT (Appeal) gave rise to two cross-appeals. Revenue as well as the assessee, both appealed to the Tribunal. The Tribunal by the impugned judgement allowed the assessee’s appeal and dismissed Revenue’s appeal. Thereupon, the Revenue has filed these appeals before us. In Tax Appeal No. 1277/10, the Revenue has proposed following question of law :
“Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 7,50,482/- out of commission paid by the assessee to its sole selling agent M/s.L.G.Doctors Associates Pvt. Ltd.?”
In Tax Appeal No.1278 of 2010, the Revenue has proposed following question :
“Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 1,20,07,023/- out of commission paid by the assessee to its sole selling agent M/s.L.G.Doctors Associates Pvt. Ltd.?”
We have heard the learned counsel appearing for the parties. From the record we notice that the Assessing Officer, gave various reasons to hold a belief that the sole selling agent, viz., a company by the name LGDA had not rendered any service to the assessee. He noted various terms and conditions of agreement between the assessee and the LGDA. He was of the opinion that such terms and conditions were not followed. Certain purchases were made by the parties directly from the assessee. For the delay in making the payments, no penalty was levied from LGDA though the agreement provided so. He also noted that LGDA was not authorized to negotiate the price with the purchasers. However, one Shri Vinodbhai Soni who was an employee of LGDA had done so. With respect to eight individual companies, he recorded the statement of representatives of such purchasers, who stated that LGDA had not contributed to the sale made by such purchasers from the assessee. According to the Assessing Officer, the cumulative effect of such factors would be that entire commission paid to LGDA was required to be disallowed.
In appeal, the CIT(Appeals), however, allowed substantial portion of the claim of the assessee. Out of the total claim of Rs. 1.27 crores towards commission paid, he disallowed only Rs.7.50 lakhs and allowed the rest. Commission of Rs. 7.50 lakhs which the CIT (Appeals) disallowed represented the sales made to eight parties with respect to whom the Assessing Officer believed that such sales were made directly.
In further appeal before the Tribunal, the Tribunal reversed the decision of the Commissioner to the extent that the same was adverse to the assessee and thereby allowed the appeal of the assessee and simultaneously the Revenue’s appeal was dismissed.
The Tribunal took note of several factors emerging from the record. The Tribunal noted that in the previous years, this very arrangement of sales through LGDA was examined by the Assessing Officer on scrutiny. The commission paid was accepted. The Tribunal also noted that it was with respect to eight parties that sales were made directly. With respect to such parties also, the Tribunal observed that the assessee might have interacted with the parties for many reasons including the supply schedule and logistic support, etc. However, merely on this basis, commission payable to such sales cannot be disallowed.
From the record, what emerges is that in the earlier years, the very arrangement of commission paid to the sole selling agent came up for consideration and such arrangement was accepted. Counsel for the assessee correctly points out that in the earlier years, the Tribunal had accepted such arrangement and in fact, the High Court had confirmed the view of the Tribunal. Additionally, we also notice that the assessee had large number of customers. In fact, it was pointed out before the Revenue authorities as well as the Tribunal that the assessee had more than 2000 customers. The Assessing Officer had examined only eight of them and found that direct purchases were made. It was on this basis that the Tribunal upheld the arrangement even with respect to such eight parties believing that the assessee might have interacted directly with a handful of customers for very many reasons.
Additionally we also find that the assessee had brought to the notice of the Revenue authorities that it does not have any sales agent other than the sole selling agent appointed by it. Such appointment was approved by the Board of Directors. LGDA also does not have any other customer and its sole task is to act as sole selling agent of the assessee. LGDA maintains sizable number of staff across the country in number of cities. It was pointed out that there are large number of buyers of assessee’s products who are located in parts of India and in various sectors, such as pharmaceuticals, food, textile, paper, etc. LGDA has appointed 20 sub-agents and 61 intermediaries spread over various important places of business to cater to the supply of company’s products located at small cities and towns.
There were voluminous records suggesting that the LGDA is not only the sole selling agent of the assessee, but it also does not undertake any other task except to promote the sales of the assessee company. Additionally, the assessee has larger number of customers and the LGDA supports such customers and maintains its agents and branches across the country. In view of such complex set up, between the assessee and the LGDA, we are of the opinion that the Tribunal committed no error in accepting the entire commission paid to LGDA. In fact, as already recorded, CIT(Appeals) had restricted the dis-allowance made by the Assessing Officer from Rs.1.25 crores as claimed by the assessee to Rs. 7.50 lakhs. Even with respect to some handful of customers, sales might have been made directly, but it cannot be stated that the LGDA was not entitled to commission qua the sales made to such agents. LGDA was the sole selling agent and was responsible for the promotion of sales. In the process, services rendered could not have been bifurcated as rightly done by the Tribunal vis-a-vis a handful of customers as against more than 2000 customers whose requirements the LGDA would be satisfying.
In the result, we are of the opinion that the Tribunal’s order requires no interference.
We may notice that the Tribunal relied on number of decisions of this Court and other courts to examine the nature of allowability of the claim made by the assessee. However, even on facts, we find that the Tribunal is justified in accepting the claim of the assessee, we do not find it necessary to make a detailed reference to these judgments.
In the result, both the Tax Appeals are dismissed.
