ITA-222-2001 (O&M) and ITA-223-2001 (O&M) 1 IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision : 10.2.2020 ITA-222-2001 (O&M) Venus Industrial Corporation Appellant Versus Asst. Commissioner of Income Tax Respondent ITA-223-2001 (O&M) Venus Industrial Corporation Appellant Versus Asst. Commissioner of Income Tax Respondent CORAM : HON'BLE MR. JUSTICE AJAY TEWARI : HON'BLE MR. JUSTICE AVNEESH JHINGAN Present : Ms. Manveen Narang, Advocate for appellant. Mr. Rajesh Katoch, Sr. Standing counsel with Ms. Pridhi Jaswinder Sandhu, Jr. Standing counsel for respondent. AJAY TEWARI, J. (Oral) 1. Vide this common order we shall dispose of above said two appeals as common question of law and facts are involved therein. For sake of convenience, facts are being taken from ITA No.223- 2001. 2. This appeal has been filed by assessee against order dated 22.11.2000 of Income Tax Appellate Tribunal (for short 'the ANURADHA 2020.02.18 16:37 I attest to accuracy and integrity of this document ITA-222-2001 (O&M) and ITA-223-2001 (O&M) 2 Tribunal) declining relief in respect of commission allegedly paid to Indian resident for booking orders for export under Section 37(1) of Income Tax Act, 1961 (for short 'the Act'). following substantial questions of law have been raised :- (i) Whether in facts and circumstances of case orders Annexure P-2 & P-4 are legally sustainable ? (ii) Whether in facts and circumstances of case order disallowing commission paid to agents is legally sustainable, same being based on mere conjectures, presumptions and surmises and misinterpretation of provisions of agreement? (iii) Whether commercial aspect and undisputed transactions including payments could be legally excluded while interpreting terms of agreement ? 3. Brief facts of case are that assessee was exporter of hand-tools, fastener and other engineering tools. It had appointed agents in different parts of world and all of those agencies had entered into agreement with asseessee-appellant which had following clauses :- 1. That Agent will book orders for Products offered for sale by Principal in territories of UK and South East Asia. 2. That Agent shall be responsible for getting Letters of Credit opened by Buyers in favour of Principal for orders booked by Agent and Accepted by Principal. 3. That Agent shall be responsible for all payments and also getting bills honoured, in time, as may be drawn by Principal on buyers. 4. That Principal will redirect all enquiries received directly indirectly from Buyers within territory referred ANURADHA 2020.02.18 16:37 I attest to accuracy and integrity of this document ITA-222-2001 (O&M) and ITA-223-2001 (O&M) 3 to hereinabove, to Agent. 5. That Agent shall be entitled to receive commission etc. from Principal, as stipulated hereunder:- (a) For U.K.:- (i) Commission @7% on F.O.B., value of goods supplied upto F.O.B., value of Rs 7 lacs. In addition, sum of Rs. 25,000/- will be paid by Principal to Agent to defray first tour expenses of Agent for UK. (ii) Conmission @5% on F.O.B. value of goods supplied by Principal to U.K. over and above F.O.B., value of Rs 7 Lacs. NOTE:- All kinds of tour expenses will, henceforth be borne by Agent. (b) At 3% of F.O.B., value of goods supplied to buyers in territory of South East Asia, namely:- Thailand Indonesia Malaysia Singapore and Philippines etc. NOTE:- All kinds of tour expenses will be borne by Agent himself. 6. That commission as stipulated in Para 5 above, will be paid only on orders executed by Principal for which total payment has been received by Principal. No commission on unexecuted orders, or payment not received will be paid to Agent. 7. That account of commission will be settled by Principal every year or earlier if required. 8. That this agreement is valid for period of three years, from date hereof whereafter, it maybe extended for further period as may be agreed upon between parties hereto. 9. In case of any dispute touching this agreement, same will be referred to arbitration under Indian Arbitration Act, then inforce and decision of such of arbitration will be binding on parties hereto. ANURADHA 2020.02.18 16:37 I attest to accuracy and integrity of this document ITA-222-2001 (O&M) and ITA-223-2001 (O&M) 4 4. conclusion of Tribunal is that to justify payment of commission assessee had to prove in every case that order had been obtained from agent. While contention of assessee was that as per agreement, assessee was to pay commission on whatever sale was generated within territory of agent. crucial clause in this regard is Clause 4 (supra). Tribunal held that this clause would not supersede Clauses 1 to 3 and 5. 5. In our opinion, interpretation of Tribunal is incorrect. Those clauses nowhere stipulates that assessee is not bound to report to agent any enquiry which may have received directly or indirectly. From reading of agreement it is clear that no order can be processed by assessee without services agent and if that is so, assessee was bound to pay commission on any sale which was taken place in territory of agent (subject to condition 7 supra). In these circumstances, we hold that Clause (4) of said agreement has wrongly been interpreted by Tribunal in facts and circumstances of case. 6. Resultanly, petitions are allowed. 7. Since main cases have been decided, pending application, if any, also stands disposed of. (AJAY TEWARI) JUDGE (AVNEESH JHINGAN) JUDGE 10.2.2020 anuradha Whether speaking/reasoned - Yes/No ANURADHA 2020.02.18 16:37 Whether reportable - Yes/No I attest to accuracy and integrity of this document Venus Industrial Corporation v. Asst. Commissioner of Income-tax