Income from commission is business income, not income from other sources

IN THE HIGH COURT OF DELHI AT NEW DELHI

ITAs No. 112/2011 & 113/2011

Reserved On: 26.05.2011

Date of Decision: 11.07.2011

COMMISSIONER OF INCOME TAX-IV  Versus FX INFO TECHNOLOGIES PVT. LTD.                  

ORDER

M.L. MEHTA, J.  *

1. These two appeals are under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) directed against the order dated 31^st March, 2010 of the Income Tax Appellate Tribunal (for short “the Tribunal”) pertaining to the assessment years 2004-05 and 2005-06. The assessee was carrying on business of distribution of Acer products, such as computers, laptops, desktops, etc. of M/s. Acer India Pvt. Ltd. for about two years. Due to some financial constraints, it could not make its business venture a profitable one and in the process incurred heavy losses. In the meeting of the Board of Directors held on 29^th December, 2001, the assessee company decided to transfer the distribution of the Acer producers to M/s. Salora International Ltd. (for short “SIL”), for which M/s. Acer India Pvt. Ltd. had also consented, by virtue of a written agreement between the assessee and SIL. The distribution of the products was to be taken over by SIL on certain terms and conditions including payment of commission on sale at the rate of one per cent with effect from 1^st January, 2002. The assessee offered the commission income gained from its business as”business income” and set off the same against the business losses incurred in the same business. It may be noted here that after the transfer of distribution to SIL, the latter could achieve huge profits within the short period of time and by virtue of the commission received from SIL, the assessee also made profits of the same business of which it was already running losses. The Assessing Officer treated the income of the assessee from commission as income from other sources and declined set off against the brought forward business losses. The assessee preferred appeals in respect of both the assessment years. In the appeal in respect of assessment year 2004-05, assessee produced three additional documents, namely, copies of letters dated 27^th December, 2001 by Acer India Pvt. Ltd. to SIL; by Acer India Pvt. Ltd to the assessee and copy of resolution of Board of Directors dated 29^th December, 2001. The CIT called for the comments of the Assessing officer under Rule 46A of Income Tax Rules, 1962. The CIT(A) allowed the appeal with these reasons: