-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. Income Tax Appeal No.663 of 2000 with Income Tax Appeal No. 664 of 2000 The Commissioner of Income Tax Mumbai City I, Mumbai ..Appellant vs. M/s Indo Saudi Services (Travel) Pvt. Ltd., 14, Raheja Centre Ground Floor, Nariman Point Mumbai 400 021 ..Respondent Mr.Vimal Gupta for appellant in both appeals Mr.K.Shivram i/b Mr.K.Gopal or respondent in both appeals. CORAM: Dr.S.RADHAKRISHNAN & CORAM: Dr.S.RADHAKRISHNAN & CORAM: Dr.S.RADHAKRISHNAN & S.J.KATHAWALLA JJ. S.J.KATHAWALLA JJ. S.J.KATHAWALLA JJ. 20th August, 2008 20th August, 2008 20th August, 2008 J U D G M E N T (Per S.J.Kathawalla J.) J U D G M E N T (Per S.J.Kathawalla J.) J U D G M E N T (Per S.J.Kathawalla J.) 1. The above appeals are filed by the Revenue impugning the common order dated 31st October, 1999 passed by the ITAT, Mumbai Bench "C", Mumbai in Application No.266/MUM/1997 of the assessee under section 234 of the Income Tax Act, 1961, arising out of ITA No.2870/M/95 and 711/MUM/96 for Assessment Years 1991-92 and 1992-93. 2. When the matters came up for final hearing, Mr.Vimal Gupta appearing for the appellant stated that though the appeals were admitted on two substantial questions of law, the appellant in both the appeals is pressing only one -2- common question of law which is set out hereunder: " Whether the incentive commission paid to the sister company which was more than other sub-agents allowable for deduction?" 3. The relevant facts giving rise to the present appeals are briefly set out hereunder. i) The assessee’s business is that of being General Sales Agents of Saudi Arabian Airlines. The assessee earned commission at the rate of 12% from Saudi Arabian Airlines on the tickets booked/sold by them. The assessee appointed several agents including their sister conern, viz. M/s Middle East International and paid incentive commission to such agents, by way of handling charges. ii) For the Assessment Years 1991-92 and 1992-93 the Assessing Officer by his orders dated 25th March, 1994 and 31st January, 1995 respectively held that the incentive commission paid to M/s Middle East International (sister concern of the assessee) was half percent more than other sub-agents. The Assessing Officer invoked sec.40A(2) of the I.T.Act and disallowed the excess commission paid to the assessee’s sister concern at the rate of 1/2%. The -3- CIT (A) by orders dated 5th January, 1995 and 14th November, 1995 confirmed the disallowance for Assessment Years 1991-92 and 1992-93 respectively. iii) The assessee carried the matter further by filing an appeal before the Tribunal. Initially the Tribunal by its common order dated 3rd April, 1997 dismissed the assessee’s appeals for the Assessment Years 1991-92 and 1992-93. Thereafter the assessee filed an application under section 254 of the I.T.Act, 1961 before the Tribunal and Tribunal by its order dated 3rd March, 1999 allowed the said Application of the assessee arising out of the Tribunal’s order dated 3rd April, 1997. Thereafter the Tribunal by its order dated 21st October, 1999 allowed the appeal of the assessee partly and deleted the additions which were earlier confirmed. (iv) The appellant (Revenue) being aggrieved by the Tribunal’s order dated 21st October, 1999 filed the above appeals, inter alia, contending that the Tribunal was not right in law in allowing the assessee’s claim of incentive commission paid to its sister concern which was half percent more than the other subagents and which has been correctly disallowed in terms of section 40A(2)(b) of the Act. -4- 4. We have heard the learned Advocates appearing for both sides. We have also perused the order passed by the Tribunal dated 21st October, 1999 which is impugned by the revenue in the present Appeals. We find that the following facts were established before the Tribunal and the same have been accepted by the Revenue even before us. i) That the assessee apart from paying handling charges at the rate of 9 1/2% to its sister concern, have paid handling charges at the same rate to other agents viz. M/s A.K.Travels, M/s Om Travels and M/s Jet Age Travels. ii) For A.Y.1986-87 and 1987-88 the assessee had paid the handling charges at the rate of 10% to the sister concern of the assessee and such charges paid were considered to be reasonable by the appellant. iii) For A.Y.1989-90 and 1990-91 the assessee had reduced the payment of handling charges to 91/2% to its sister concern. The Assessing Officer has considered the payment of commission to the sister concern in the A.Y.1989-90 and allowed the claim after due scrutiny. For A.Y.1990-91 also the claim of the assessee at the rate of 9 1/2% has been allowed though the same has not been dealt with by the Assessing Officer specifically in the order. -5- iv) For A.Y.1993-94 and 1994-95 the assessment has been made by the Assessing Officer under section 143(3) and handling charges paid to the sister concern at the rate of 9.5% have been considered to be reasonable and allowed. iv) The sister concern of the assessee M/s Middle East International is also assessed to tax and income assessed for the A.Y.1991-92 is Rs.9,38,510/- and for A.Y.1992-93 is Rs.14,65,880/- and the said assessment orders have been placed on record. v) Under the CBDT Circular No.6-P dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) inrespect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. 5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT (A) was wrong in disallowing half percent commission paid to the sister concern of the assessee during the Assessment Years 1991-92 and 1992-93. The learned Advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also -6- paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the Tribunal. 6. We, therefore, answer the above question of law raised in these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as to costs. (S.J.KATHAWALLA J.) (Dr.S.RADHAKRISHNAN J.) (S.J.KATHAWALLA J.) (Dr.S.RADHAKRISHNAN J.) (S.J.KATHAWALLA J.) (Dr.S.RADHAKRISHNAN J.)