Ita/222/2001 Of Venus Industrial Corporation v. Asst Commissioner Of Income Tax

ITA-222-2001 (O&M) and ITA-223-2001 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH Date of Decision : 10.72.202 ITA-222-2001 (O&M) Venus Industrial Corporationeee APpPellant ( *%)% Asst. Commissioner of Income Tax wooeee RESPONCEnt ITA-223-2001 (O&M) Venus Industrial Corporation eee APpPellant ( *%)% Asst. Commissioner of Income Taxwooeee RESPONCEnt CORAM : HON'BLE MR.JIUSTICE AJAY TEWAR*HON'BLE MR.JUSTICE AVNEESH JHINGAN333*HON'BLE MR.JUSTICE AVNEESH JHINGAN333 Present ;Ms. Manveen Narang, Advocatefor the appellant. Mr. Rajesh Katoch, Sr. Standing counsel withMs. Pridhi Jaswinder Sandhu, Jr. Standing counselfor the respondent. 333 AJAY TEWARI, J. (Oral) 1]Vide this common order we shall dispose of above said twoappeals as the common question of law and facts are involved therein.For the sake of convenience, facts are being taken from|ITA No223- 2001. ?DThis appeal has been filed by the assessee against the orderdated 22.11.2000 of the Income Tax Appellate Tribunal (for short ‘the Tribunal) declining a relief in respect of commission allegedly paid toIndian resident for booking orders for export under Section 37 (1) of theIncome Tax Act, 1961 (for short ‘the Act'). The following substantialquestions of law have been raised :- “(i) Whether in thefacts and circumstances of the case theorders Annexure P-2 & P-4 are legally sustainable 2 (11) Whether in the facts and circumstances of the case theorder disallowing the commission paid to the agents islegally sustainable, the same being based on _ merconjectures,presumptionsandSUYMISeSandmisinterpretation of the provisions ofthe agreement?(111) Whether the commercial aspect and the undisputedtransactions including payments could be legally excludedwhile interpreting the terms ofthe agreement ?”’ 3,Brief facts of the case are that the assessee was an exporter ofhand-tools, fastener and other engineering tools. It had appointed agentsin different parts of the world and all of those agencies had entered intoan agreement with the asseessee-appellant which had the followingclauses :- “7That the Agent will book orders for the Productsofferedfor sale by the Principal in the territories of UK andSouth Fast Asia. 2.That the Agent shall be responsible for getting theLetters of Credit opened by the Buyers in favour of thePrincipal for the orders booked by the Agent and Acceptedby the Principal. 3.|That the Agent shall be responsible for all paymentsand also getting the bills honoured, in time, as may be drawnby the Principal on the buyers. 4 |That the Principal will redirect all enquiries receiveddirectly indirectly from the Buyers within territory referred ITA-222-2001 (O&M) and ITA-223-2001 (O&M) to hereinabove, to the Agent. 5That the Agent shall be entitled to receive thecommission etc. from the Principal, as _ stipulatedhereunder:- (a) For U.K. : (i) Commission @7% on the F.O.B., value of thegoods supplied upto the F.O.B., value ofRs 7 lacs. Inaddition, a sum of Rs. 25,000/- will be paid by thePrincipal to the Agent to defray thefirst tour expenses|of the Agent for UK. (11) Conmission @5% on the F.O.B. value of the goodssupplied by the Principal to U.K. over and above theF.O.B., value of Rs 7 Lacs. NOTE:-All kinds of tour expenses will, henceforth beborne by the Agent. (b) At 3% of the F.O.B., value of the goods supplied to thebuyers in the territory of South East Asia, namely:-Thailand Indonesia Malaysia Singapore and Philippines etc.NOTE :All kinds of tour expenses will be borne by theAgent himself. 6.|That commission as stipulated in Para 5 above, willbe paid only on the orders executed by the Principal forwhich total payment has been received by the Principal.No commission on unexecuted orders, or payment notreceived will be paid to the Agent. 7 |That the account of commission will be settled by thePrincipal every year or earlier ifrequired.| (11) Conmission @5% on the F.O.B. value of the goodssupplied by the Principal to U.K. over and above theF.O.B., value of Rs 7 Lacs. NOTE:-All kinds of tour expenses will, henceforth beborne by the Agent. (b) At 3% of the F.O.B., value of the goods supplied to thebuyers in the territory of South East Asia, namely:-Thailand Indonesia Malaysia Singapore and Philippines etc.NOTE :All kinds of tour expenses will be borne by theAgent himself. 6.|That commission as stipulated in Para 5 above, willbe paid only on the orders executed by the Principal forwhich total payment has been received by the Principal.No commission on unexecuted orders, or payment notreceived will be paid to the Agent. 7 |That the account of commission will be settled by thePrincipal every year or earlier ifrequired.| A'That this agreement is valid for a period of threeyears, from date hereof whereafter, it maybe extended for afurther period as may be agreed upon between the partieshereto. B'In case of any dispute touching this agreement, thesame will be referred to arbitration under the IndianArbitration Act, then inforce and a decision of such of thearbitration will be binding on the parties hereto. ITA-222-2001 (O&M) and ITA-223-2001 (O&M) 4The conclusion of the Tribunal is that to justify the payment of commission the assessee had to prove in every case that the order hadbeen obtained from the agent. While the contention of the assessee wasthat as per the agreement, the assessee was to pay commission onwhatever sale was generated within the territory of the agent. The crucialclause in this regard is Clause 4 (Supra). The Tribunal held that thisclause would not supersede Clauses | to 3 and 5. 5 In our opinion, the interpretation of the Tribunal is incorrect.Those clauses nowhere stipulates that the assessee is not bound to reportto the agent any enquiry which may have received directly or indirectly.From reading of the agreement it is clear thatno order can be processedby assessee without services the agent and if that is so, the assessee wasbound to pay commission on any sale which was taken place in theterritory of an agent (subject to condition 7 supra). In _ thesecircumstances, we hold that Clause (4) of the said agreement has wronglybeen interpreted by the Tribunal in the facts and circumstances of theCaS@, 6 Resultanly, the petitions are allowed. vaSince the main cases have been decided, the pendingapplication, if any, also stands disposed of. (AJAY TEWARIT) JUDGE 10.2.2020anuradha (AVNEESH JHINGAN)JUDGE 4Yes/No4Yes/No4Yes/No