1986 PLP 653 (PTD)

‑‑‑Reference‑‑Question of law‑‑On a finding of fact by Tribunal that a particular debit entry is genuine, no question of law arises. Under a sole selling agency entered into by assessee with a company which manufactures meters, assessee was entitled to 10% commission on selling prices at which meters are sold. In the accounting year assessee sold some meters at prices higher than those fixed by company. The company claimed the benefit of higher prices but assessee refused. As a result of settlement of dispute between then, assessee accepted two debit notes totalling to Rs. X and debit notes were made in books of assessee. Held, by no stretch of imagination could the excess price be regarded as income of assessee. It was not allowed to pocket it. The assessee had to account for it to company which resulted in the issue of debit notes. All receipts would not be income. The income would be the commission that it earns the finding of fact given by the Tribunal is that the debit entry of Rs. X was a genuine debit entry. Attempt to question genuineness of transaction of two debit notes is not permissible in reference proceedings. The genuineness has already been upheld, No question of law really arises at all. Reference made seems to be uncalled for. JUDGMENT PRAKASH NARAIN, C. J.‑‑Two questions of law have been referred to the High Court by the Income‑tax Appellate Tribunal. Delhi Bench "A". These read as under:‑ (i) Whether on the facts and on the circumstances of the case the Tribunal was right in holding that the sum of Rs.1,01,779 was an admissible business expense? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was correct in negating the department's contention that the sum of Rs.1,01,779 constituted income in the hands of the assessee?

2. Briefly stated the facts are these. The assessee entered into a sole selling agency agreement with Messrs Motors Instruments Private Ltd. (hereinafter referred t9 as the Company) on April 1, 1960. The company was manufacturer of meters. It was agreed between the parties that these meters would be sold through the sole selling agency of the assessee. The two relevant terms of the agreement between the parties read as under:‑ "The Company will submit prices to the selling agents who in turn will quote their own prices to customers or sub‑agents/distributors. It is agreed that the selling agents shall sell meters and other products at the prices fixed by the company from time to time which shall be reasonable and in line with prices of other Indian meters manufacturers or fixed by the Indian Meters Manufacturers Association. Commission: The selling agents shall be entitled to 10% (ten per cent) commission on the selling prices at which meters are sold by them to the Customers, the commission will be paid to the selling agents on all orders received direct or indirect during the terms of the agreement. The commission will be allowed in the bills issued by Meters and Instruments Private Limited to Messrs Netar Krishna Sahgals Private Limited." In case of sub‑agents or distributors of the selling agents they shall be paid out of the aforesaid commission of 10% (ten per cent). Whenever the company supply the meters directly under instructions of the selling agents the company will charge prices settled between Netar. Krishana Sahgals Private Limited and their sub‑agents/distributors or buyers and pass on the difference of commission to Netar Krishna Sahgals Private Limited. It is of course understood that the total commission at any time will not exceed 10% (ten per cent)." The accounting year of the assessee was 1‑7‑1962 to 30‑6‑1663, the assessment year being 1964‑

65. In the accounting year, it seems, the assessee sold some meters at prices higher than the prices fixed by the Company. This fact was brought to the notice of the assessee by the Company by a letter, dated 25‑3‑1963. In this letter the Company protested against the assessee charging higher prices and claimed that the benefits of higher prices charged by the assessee should have been passed on to the Company, the manufacturer of the meters. The assessee in reply to this letter claimed in its letter of dated, 8‑4‑1963 that the Company itself had not been supplying sufficient number of meters with the result that the 10 per cent commission could not be regarded as adequate to meet the expenses which the assessee had to meet in conducting sales of the meters. It was also complained by the assessee that the delivery of meters was not according to time schedule. The assessee contended that losses incurred by it on account of erratic supply of meters and non‑supply of sufficient meters could result in heavy losses which could not be adequately covered by the 10 per cent Commission on sales. There was after this further correspondence between the parties and some negotiations. It seems that dispute between the company and the assessee was amicably settled. As a result of this settlement the assessee accepted two debit notes totalling Rs.1,01,779 and made it clear that no further debit notes would be accepted by it either for future or past transactions. The debit notes were made in the books of the assessee on June 29, 1963 though the debit notes were, dated 30‑3‑1963 and May 29, 1963.

3. In the assessment proceedings before the Income‑tax Officer, a question arose with regard to the amount of Rs.1,01,

779. The Income‑tax Officer did not consider the debit entry of June 29, 1963 to be genuine. He also discounted the contention that the transaction was in due course of business. On appeal the Appellate Assistant Commissioner took the same view as the Income‑tax Officer. On further appeal to the Tribunal, however the assessee succeeded and it was held that the amount of Rs.1,01,779 debited by accepting two debit notes was a genuine transaction and so could not be regarded as income of the assessee. On a motion made by the Revenue the aforesaid two questions have been referred to the High Court for its opinion.

4. In our opinion, no question of law really arises at all. It is a pure question of fact. The finding of fact given by the Tribunal is that the debit entry of Rs.1,01,779 was a genuine debit entry. In this view of the matter the reference made seems to be uncalled for.

5. Learned counsel for the Revenue, however, urged that reading the clauses of the agreement, dated April 1, 1960 it was possible to say that assessee was entitled to sell the meters at a higher price than the price fixed by the Company and, therefore, the Higher price received by it or the difference between higher price and the price fixed by the Company would be income of the assessee. There is no force in this contention. On a plain reading of the clauses of the agreement, specially the ones which we have extracted earlier, it is obvious that the only income which the assessee could derive was the 10 per cent commission. If he charged a lower price than the price fixed by the Company, he may have been entitled to 10 per cent or less on the price charged. That is, however, academic and we need not express any opinion on it. If a higher price was charged by the assessee, he was entitled to 10 per cent of the sale price. Inasmuch as the assessee was bound under the agreement to sell at the price fixed by the Company, if any excess price was recovered from a customer it had to give that excess to the Company. By no stretch of imagination could the excess be regarded as the income of the assessee unless, of course, the assessee had been allowed to pocket the same. As it happens, the assessee was not allowed to pocket the same. The assessee had to account for it to the Company which resulted in the issue of, the aforesaid two debit notes. We must make it clear that all receipts would not be income. Indeed, in a contract like the one in the present case the receipts of the assessee would not be income at all. The income would be the commission that it earns. The fallacy of the argument advanced or behalf of the Revenue is that it is equating receipts with income. Attempt to question the genuineness of the transaction of the two debit notes is not permissible in reference proceedings. The genuineness has already been upheld.

6. The result is that we answer the aforesaid two questions in the affirmative in favour of the assessee.

7. The assessee was not represented before us despite notice. So, the reference has been answered ex parte. M. B. A. Answered in affirmative.