1985 PLP D208 (PTD)

NAIMUDDIN, J.-- By this reference under section 66(1) of the Income-tax Act, 1922 made by the Commissioner of Income-tax (Central) Karachi, he has raised the following question of law for answer by this Court The question reads as follows:- Whether on the facts and in t e circumstances of the case the payment of Rs.1,20,951 in the assessment year 1964-65 was admissible deduction within the meaning of section 10(2)(xvi) of the Income-tax Act?

2. The facts giving rise to the above question may be briefly stated are as follows:-

3. The respondent is a private Limited Company carrying on business in Kerosene Oil, Petrol and Lubricants. In Kerosene 011 account for the assessment year 1964-65 the assessee made a payment of Rs.1,20,951 to an association of other petrol dealers as a consideration under an agreement to avoid unhealthy competition by keeping the price at certain proportionate rates.

4. The Income-tax Officer disallowed the expenditure on two-fold grounds; firstly, the agreement, dated 11-6-1959 in support of the payment amongst the members in this line of trade to share profit at certain proportion was not legally binding on them, and secondly, the distribution of profits by the so-called agreement merely represented a division of profit earned by the assessee-Company and not a diversion of the same by an overriding title.

5. The respondent being aggrieved by the aforesaid order preferred an appeal with the Income-tax Appellate Tribunal. The learned Tribunal relying on its previous decisions in I.-T.A. No. 726 of 1966-67 and 1925 of 1967-68, accepted the genuineness of the respondent's claim and directed the deletion of the amount in dispute. Yet not satisfied with the order of the Tribunal the applicant has come up before us in this reference, under section 66(1) of the Income-tax Act, 1922.

6. We have heard Mr. Haider Ali Pirzada learned counsel for the applicant as well as Mr. Ali Athar, Advocate for the respondent. Mr. Athar Ali, learned counsel for the respondent has relied on the earlier decision of this Court between the same parties in respect of the same subject-matter as is under consideration in the reference, which is reported as Commissioner of Income-tax Karachi v. Moosa Omar & Co. Ltd. 1980 41 Tax. 19 (H.C. Kar.). In this case the question, which came up for consideration was in the following terms: "Whether on the facts and in the circumstances of the case, the payments of Rs.1,25,,403 in the assessment year 1961-62 and of Rs.1,07,585 in the assessment year 1962-63 were admissible deduction within the meaning of section 10(2)(xvi) of the Income tax Act?" A Division Bench of this Court consisting of Mr. Justice I. Mahmood and Mr. Justice Muhammad Zahoorul Haq had decided the question in the affirmative. In fact on behalf of the parties several cases were cited namely, Pondicherry Railway Co. Ltd. v. Commissioner of Income tax A I R 1931 P C 165, Commissioner of Income-tax v. C. V1acDonald & Co. (1935) 3 I T R 459;Indian Radio and Cable Communications Co. Ltd. v. Commissioner of income-tax (1937) 5 I T R 270; Union Cold Storage Co. Ltd. v. Adamson (1931) 16 T C 293, 321; Guest, Keen and Netherlands Ltd. v. Fowler (Surveyor of Taxes) 5 T C 511, 517, Gramhamston'Iron Co. 'v. Crowford (Surveyor of Taxes) 7 T C 25, 28; Commissioner of Income-tax v. Sarbianga Sugar Co. Ltd. (1957) 32 ITR 64; E.D. Sassoon and Co. Ltd. v. Commissioner of Income-tax (1954) 26 I T R 27, 47.

7. On behalf of the applicant the learned counsel cited Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax Madras Commissioner of Income-tax, Bombay v. C. MacDonald & Co. and Indian Radio and Cable Communications Co. Ltd. v. The Commissioner of income-tax Bombay. Their Lordships distinguished the Pondicherry case by referring ".o the observations of Lord MacMillan in the case of Union Cold Storage Co. Ltd. v. Adamson. The Division Bench has discussed all these cases in great detail and no arguments have been advanced to question the correctness of the decision.

8. We are also of the view that any payment made to any person in competition with the respondent under an agreement to avoid any unfair competition would be admissible deduction under section 10(2)(xvi) and this view finds full support from the case of Guest, Keen and Nettlefolds, Ltd. v. Fowler (Surveyor of Taxes). This was a case of members of Steel Hoop Manufacturers Association. In that case the Association agreed to sell allotted quantity of the steel hoop at an agreed fixed price and in case they sold excess goods, they were to pay to the Association a fixed amount of 10 sly. per ton on the excess which excess amount was then distributed in due proportion amongst those members who had sold less than their proportionate quantities. It was held in this case that the object of the agreement was to keep up prices and prevent competitors from selling below a fixed price thereby earning large profits. Thus, the excess payments made by the assessee to the Association were allowed as admissible deductions. This case has been followed in Grahamston Iron Company .v, Crawford (Surveyor of Tax). Mr. Ali Athar also referred to Commissioner of Income-tax, Bihar and Orissa v. Sarbianga Sugar Co. Ltd. This case also supports the view taken in earlier case. Indeed the learned Judges in the cited case have observed in paragraph 8 thereof as follows:- "We have ourselves construed the terms and conditions of the agreement and are inclined to agree with the submission of Mr. Ali Athar that the object of the arrangement was to maintain a minimum sale price and avoid cut throat competition amongst themselves also to enable them to make larger profits." They further observed that it was not a case of joint venture for dividing profits and we agree with the interpretation and finding by the Tribunal that the payments were admissible deductions under section 10(2)(xvi) of the Income-tax Act. They also observed that they were unable to accept the contention of Mr. Mansoor Ahmad Khan that the conclusion reached by the Appellate Tribunal was not supported by evidence.

9. Mr. Ali Athar also wanted us to consider another point, which has been noticed in paragraph 9 of the judgment cited by him but we do not consider it necessary to go into it for we are of the view that the view of law expressed by the other Division Bench of this Court in the earlier case is not only sound but no arguments or cogent reasons have been advanced to take contrary view nor has any other case been cited to require any further review of the case law.

10. Under the circumstances, we decide this reference by answering the question referred to us in the affirmative. However, in the circum stances of the case we leave the parties to bear their own costs: M. B. A. Answered in affirmative.