In Narasu Pictures Circuit (Pvt.) Ltd. Vs. Commissioner of Income-tax (80ITR82) the assessee showed commission received from a sister concern (President Talkies Ltd.) in original return of income. Such commission was disallowed in the payer company’s assessment as not genuine. In confirming such disallowance the Tribunal gave the following finding.
“ The commission is only an adjustment. There has been no actual payment or a receipt of cash involved. Such an adjustment has been held to be bogus so that in effect it has got to be erased out of the picture.”
Taking benefit of such finding the assessee submitted a revised return on the basis that commission was not received by it and claimed that a mere entry in the assessee’s accounts making it appear that such other company was indebted to it could not lead to the inference either that the assessee received the amount or that a right to receive it accrued in its favour. Further the assessee passed the following board resolution to support its stand: –
” Resolved that in view of the fact that the Presidency Talkies Ltd. has been put to unavoidable expenditure of payment of tax on booking commission claimed by the company and in consideration of the mutual good business relationship that exists between the companies the booking commission charged for the above accounting years be waived and that the Presidency Talkies Ltd. be accordingly advised about the waiver of the booking commission and the necessary refund would be granted. ”
In the case of the assessee recipient however the Tribunal held that the payment of commission not having been considered as genuine in the hands of the payer does not mean that there cannot be receipt also. It held that reference to genuine payment does not mean absence of any payment or adjustment. The genuineness was with respect to services rendered and the necessity for such payment. The bogey of double taxation also does not exist, because in this case, the parties are entirely different.
Reacting sharply to the order of the Tribunal the Madras High Court held that the question whether the assessee received the disputed amount as income is a question of fact which it was the Tribunal’s duty to decide. It should have recorded a categorical and unequivocal finding in the matter.
In further explaining the law on the subject of accrual of income and its charge to tax the Court held that in the eye of law the assessee and the payer company are two independent corporations. If no booking commission was charged or chargeable by the assessee against the Presidency Talkies Ltd., any entry in the books of account of the assessee making it appear as if the Presidency Talkies Ltd. was indebted to it, cannot lead to the inference either that the assessee received the amount or that a right to receive it accrues in its favour. It is true that in the original return filed by the assessee this amount was voluntarily included as part of the taxable income. But this position was retracted from in the revised return submitted by it. The amount can be brought to tax only if it is determined by the department to be income in the hands of the assessee. There must of course be materials to sustain the view that it is income. Any omission on the part of the department or the Tribunal to record a clear finding on this question, namely, whether it is income or not, must result in its exclusion from chargeability to tax.