Smt. Godavari Devi Sehgal Vs. Income-tax Officer - Court Judgment

SooperKanoon Citationsooperkanoon.com/64496
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided OnJan-03-1991
JudgeG Krishnamurthy, D Sharma, K Vishwanathan, Vice
Reported in(1992)40ITD71(Delhi)
AppellantSmt. Godavari Devi Sehgal
Respondentincome-tax Officer
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1. this appeal filed by the assessee is directed against the order dated december 19, 1988, passed by the commissioner of income-tax (appeals) ["cit (a)" for short].2. the only dispute arising in this appeal relates to disallowance of commission aggregating to rs. 79,232 paid to dr. b.n. wahi and his son, shri diwakar wahi. the assessee, an individual, carries on a business in purchase and sale of homoeopathic medicines under the name and style of segal's pharmacy, chandni chowk, delhi. during the course of assessment proceedings, the income-tax officer noticed that the assessee's establishment consisted of 14 employees. all employees except dr. b.n. wahi were paid salaries besides bonus, unavailed leave benefits and commission. a sum of rs. 90,539.86 was paid as commission to dr. b.n......
Judgment:
1. This appeal filed by the assessee is directed against the order dated December 19, 1988, passed by the Commissioner of Income-tax (Appeals) ["CIT (A)" for short].

2. The only dispute arising in this appeal relates to disallowance of commission aggregating to Rs. 79,232 paid to Dr. B.N. Wahi and his son, Shri Diwakar Wahi. The assessee, an individual, carries on a business in purchase and sale of homoeopathic medicines under the name and style of Segal's Pharmacy, Chandni Chowk, Delhi. During the course of assessment proceedings, the Income-tax Officer noticed that the assessee's establishment consisted of 14 employees. All employees except Dr. B.N. Wahi were paid salaries besides bonus, unavailed leave benefits and commission. A sum of Rs. 90,539.86 was paid as commission to Dr. B.N. Wahi. In respect of payment of commission to Dr. B.N. Wahi, the assessee was required by the Income-tax Officer to produce supporting evidence in the form of any agreement for payment of a huge amount of commission to Dr. B.N. Wahi. The assessee filed a letter before the Income-tax Officer stating that Dr. B.N. Wahi was the general attorney of the assessee and was looking after the entire business since 1952 and that he did not draw any salary. Commission was paid to Dr. B.N. Wahi on gross sales at eight per cent. It was further stated that these facts had been explained to the Income-tax Officer during the assessment year 1984-85. The Income-tax Officer observed that no documentary evidence in the form of an agreement has been filed either during the assessment year 1984-85 or during the assessment year 1986-87. The Income-tax Officer mentioned that the assessee was having sufficient staff under her employment and that the huge commission paid to Dr. B.N. Wahi was not commensurate with the work done by him. In this connection, he has noted that sales and purchases were effected almost to selected parties and Dr. B.N. Wahi had no role to play as a salesman or as a representative. The assessee did not produce any evidence to show whether any orders were procured by Dr. B.N. Wahi. It was, however, stated before the Income-tax Officer that, for the last many years, commission was being paid to Dr. B.N. Wahi on gross sales at a fixed rate. The Income-tax Officer was of the view that the assessee had reduced the incidence of tax. He further noted that the assessee was doing trading business and she was not running a trading-cum-consultancy business. For all these reasons, the Income-tax Officer allowed commission payment to Dr. B.N. Wahi at two per cent, only and the rest of the commission paid to him was disallowed.

3. A sum of Rs. 23,548 was paid as commission to Shri Diwakar Wahi, son of Dr. B.N. Wahi. Shri Diwakar Wahi is an apprentice (management). The Income-tax Officer noticed that there was another apprentice named Umesh Sehgal (apprentice-pharmacy work) to whom a commission of Rs. 1,183 had been paid besides payment of Rs. 3,550 as salary, Rs. 450 as bonus and Rs. 255 as unavailed leave benefit. The Income-tax Officer allowed commission payment to Shri Diwakar Wahi at one per cent, only and the balance of commission payment was disallowed. In this way, the totaf disallowance out of the commission paid to Dr. B.N. Wahi and his son, Shri Diwakar Wahi, amounted to Rs. 79,232 (Rs. 67,911 + Rs. 11,321).

4. The assessee appealed to the Commissioner of Income-tax (Appeals) who has mentioned in his order that Dr. B.N. Wahi is the brother of Smt. Pushpawati Sehgal who is the daughter-in-law of the assessee. Late Dr. R.N. Sehgal, husband of the assessee was conducting the business of sale and purchase of homoepathic medicines as proprietor. He died in the year 1949. It was stated before the Commissioner of Income-tax (Appeals) on behalf of the assessee that there were disputes among the family members over the assets of the deceased including his business.

The business premises remained locked for a period of three years. In the year 1952, the business was recommenced and Dr. B.N. Wahi joined the assessee as an employee. Here, it may be stated that, according to the submissions made before us on behalf of the assessee, Dr. B.N. Wahi never acted as an employee of the assessee but, ever since his association with the business run by the assessee, he has been paid commission on gross sales of homoepathic medicines. Before the Commissioner of Income-tax (Appeals), it was submitted that there was an oral understanding between the assessee and Dr. B.N. Wahi to the effect that the latter shall get commission at ten per cent, of the sales. It was further urged that due to the delicate relationship between the two families, no written agreement was executed setting out the terms of the agreement. It was submitted that, for the assessment year 1986-87, Dr. B.N. Wahi was paid commission at eight per cent, of the sales and the balance two per cent, has been diverted to his son, Diwakar Wahi.

5. It was further submitted before the Commissioner of Income-tax (Appeals) that commission payment to Dr. B.N. Wahi has been allowed in the earlier years and hence no disallowance out of the commission paid to Dr. B.N. Wahi was called for. A copy of the general power of attorney executed by the assessee in favour of Dr. B.N. Wahi was also filed before the Commissioner of Income-tax (Appeals) in support of the contention that Dr. B.N. Wahi was looking after the business of the assessee. It was further submitted that, being a qualified doctor, he was eligible for the grant of drug licence which was necessaiy for the assessee's business. It was further submitted that the commission paid to Diwakar Wahi could not be disallowed since his father relinquished his own share in favour of his son.

6. The Commissioner of Income-tax (Appeals) concluded that payment of commission to Dr. B.N. Wahi and his son, Diwakar Wahi, was excessive and disproportionate to the services rendered by them. He noted that Dr. B.N. Wahi diverted a part of his commission of two per cent, to his son and this fact demonstrated the correctness of the Income-tax Officer's inference that the commission payments were motivated by personal considerations and were not related to business expediency.

The Commissioner of Income-tax (Appeals), looking to the nature of business, was of the opinion that there was no business expediency for payment of the excessive commission as claimed by the assessee. He further noted that no services of consultancy have been rendered by Dr.

B.N. Wahi and that the remuneration was paid to him far in excess of other employees. The Commissioner of Income-tax (Appeals) confirmed the action of the Income-tax Officer making a disallowance of Rs. 79,232 out of commission paid to Dr. B.N. Wahi and his son, Diwakar Wahi. The assessee has now come up in second appeal before the Tribunal.

7. Shri K. Sampath, learned counsel for the assessee, has submitted before us that Dr. B.N. Wahi never joined the business of the assessee as her employee and that he joined as a consultant. He was never paid any salary and that, for the last 30 years, he had been paid commission at ten per cent, which had always been allowed in the past. It was contended that the assessee was an old illiterate lady and that the entire business was looked after by Dr. B.N. Wahi and that after the business had been closed in the year 1949 on account of the death of the assessee's husband, it was through the efforts of Dr. B.N. Wahi that the business was revived three years later and it was through his efforts that there was a great boost to the business of the assessee.

It was pointed out that Dr. R.N. Wahi, younger brother of Dr. B.N.Wahi, was in the service of the assessee and was also doing consultancy work. He was getting 50 per cent, of the receipts from consultancy and the remaining 50 per cent, of such receipts went to the assessee. In support of this contention, our attention was invited to the statement of profit and loss account for the year ending on December 31, 1985, which is at page 13 of the paper book which shows that, besides gross profit of Rs. 3,02,670.57, the assessee also received commission of Rs. 57,179.25 which according to learned counsel for the assessee, was 50 per cent, from consultancy work done by Dr. R.N. Waht. Learned counsel then submitted that the services rendered by Dr. B.N. Wahi and his brother, Dr. R.N. Wahi, should be considered taking them as a single unit for the purposes of ascertaining whether the expenditure incurred on payment of commission to Dr. B.N. Wahi was incurred wholly and exclusively for the purposes of business. In this connection, our attention was also invited to the general power of attorney executed by the assessee in favour of Dr. B.N. Wahi, a copy whereof is at pages 16 to 19 of the paper book. In clause 30 of this power of attorney, it is stipulated that, in case of death of Dr. B.N. Wahi or his inability or unwillingness due to absence, illness or otherwise to act as an attorney, Dr. R.N. Wahi was to be appointed as an attorney in his place. It was thus contended that Dr. B.N. Wahi and his brother, Dr.

R.N. Wahi, should be treated as one entity. Shri Sampath further submitted that, while Dr. B.N. Wahi worked as chief consultant, his brother, Dr. R.N. Wahi, worked as a consultant.

8. It was next submitted that, in the certificate of the Drug Controller, a copy of which is at page 20 of the assessee's paper book, the name of Shri Sunil Mohan, one of the employees was added by way of caution and that both Dr. R.N. Wahi and Dr. B.N. Wahi were qualified doctors in whose favour a drug licence could be issued. Shri Sampath further submitted that due to a delicate relationship between the assessee and Dr. B.N. Wahi, no written agreement was executed. It was then contended that the turnover of the business also justified the payment of commission to Dr. B.N. Wahi, 9. It was next contended on behalf of the assessee that as Dr. B.N.Wahi was not able to work as efficiently as he was doing before due to his advanced age, he relinquished two per cent, of commission which was paid to his son, Diwakar Wahi, who was helping him in the business. In this connection, it was also pointed out that, while Shri Diwakar Wahi was an apprentice (management), Shri Umesh Segal was an apprentice (pharmacy work) and, therefore, the commission paid to Diwakar Wahi at two per cent, of gross sales could not be compared with the commission paid to Umesh Segal. According to Shri Sampath, the income-tax Officer disallowed a part of the commission paid to Dr. B.N. Wahi and his son on subjective considerations. Reliance has been placed on the decisions of the Supreme Court in J.K. Woollen Manufacturers v. CIT [1969] 72 ITR 612 and Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11.

Reliance has further been placed on the decision of the Calcutta High Court in CIT v. Edward Kevcnter (P.) Ltd. [1972] 86 ITR 370, decision of the Patna High Court in Jamshedpur Motor Accessories Stores v. CIT [1974] 95 ITR 664, decision of the Madras High Court in S. Palaniandi Mudaliyar and Sons v. CIT [1975] 99 ITR 231 and the decision of the Supreme Court in Shahzada Nand and Sons v. CIT [1977] 108 ITR 358, 365.

10. Shri Sandeep Tandon, the learned Senior Departmental Representative, fully supported the impugned order of the Commissioner of Income-tax (Appeals) on the point under consideration. It was submitted that no evidence could be adduced by the assessee to show that the commission paid to Dr. B.N. Wahi and his son, Divvakar Wahi, was commensurate with the services rendered by them. It was then contended that even though the Income-tax Officer has mentioned the section under which disallowance out of commission has been made, the disallowance fell under section 40A(2) because of the relationship between the assessee and Dr. B.N. Wahi and his son. It was then contended that, for the assessment year under consideration, Dr. B.N.Wahi did not render any consultancy service. No evidence was adduced to show as to what specific services were rendered by him for which he was paid the huge commission of Rs. 90,540. According to Shri Tandon, the very fact that Dr. B.N. Wahi claimed to have relinquished two per cent commission in favour of his son was indicative of the fact that it was a mere arrangement made for reducing the tax liability of the assessee.

It was then contended that, in the assessment year under consideration, the Income-tax Officer made a thorough enquiry into the matter and that commission payment made this year cannot be allowed simply because similar payment had been allowed in the past. May be in the earlier assessment years, Dr. B.N. Wahi was rendering consultancy services and so payment of commission to him was found to be in order. At any rate, it was submitted that there can be no agreement in perpetuity and that each year was a separate unit of assessment and the Income-tax Officer was not bound to allow commission payment simply on the ground that similar payment had been allowed in the past. The learned Senior Departmental Representative relied on the decisions of the Supreme Court in Lahshmi Ratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 and Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439, the decision of the Calcutta High Court in Vishnu Agencies (P.) Ltd, v. CIT [1979] 117 ITR 754 and that of the Madhya Pradesh High Court in Ramdas Ramlal v.CIT [1983] 139 ITR 620. Reliance has also been placed on the decision of the Madhya Pradesh High Court in CIT v. Ramdas Ramlal [1984] 149 ITR 256 and the decision of the Punjab and Haryana High Court in Ess Ess Kay Engg. Co, (P.) Ltd. v. CIT [1985] 151 ITR 636.

11. In reply, it was submitted by Shri Sampath that Section 2(41) of the Income-tax Act, 1961, defines "relative" in relation to an individual to mean the husband, wife, brother or sister or any lineal ascendant or descendant of that individual. It was further submitted that the cases cited on behalf of the Revenue were not applicable to the facts of this case.

12. We have considered the submissions made on behalf of the parties and have gone through the record of the case including the paper book filed by'the assessee. We have also perused the authorities cited on behalf of the parties.

13. The facts about which there is no dispute between the parties may first be stated. Dr. B.N. Wahi is the brother of Smt. Pushpawati Sehgal who is the daughter-in-law of the assessee. The late Dr. R.N. Sehgal, husband of the assessee, was conducting business in purchase and sale of homoeopathic medicines. He carried on this business as a proprietor.

Dr. R.N. Sehgal died in 1949 and thereafter, due to family disputes, the business was discontinued and the business premises remained under lock and key for about three years. The business was restarted in the year 1952 when Dr. B.N. Wahi joined the assessee. It appears that, from the beginning, Dr. B.N. Wahi was not being paid any salary but was paid commission at ten per cent. This will be clear from page 1 of the paper book filed by the assessee which gives details of commission payments to Dr. B.N. Wahi for various assessment years. True, there was no written agreement between the assessee and Dr. B.N. Wahi regarding payment of commission to the latter. However, from the materials placed on the record, it is evident that Dr. B.N. Wahi was being paid commission at ten per cent, of gross sales and that, in the earlier assessment years, the entire commission paid to him was allowed by the Department. The fact that, over a long period of years, Dr. B.N. Wahi was being paid commission at ten per cent, of the gross sales goes to show that there was an oral agreement between the assessee and Dr. B.N.Wahi whereunder the latter was being paid commission at the aforesaid rate. We agree with the contention advanced on behalf of the assessee that mere absence of a written agreement would not justify disallowance of a part of commission paid to Dr. B.N. Wahi. In the written submissions filed before the Commissioner of Income-tax (Appeals) a copy whereof is at pages 21 to 23 of the paper book, it was, inter alia, contended on behalf of the assessee that because of advanced age, Dr. Wahi was not able to do as efficiently as he had been doing before and, therefore, he relinquished his own share of commission in favour of his son, Diwakar Wahi. What is significant is the fact that there is nothing on the record to suggest that, during the assessment year under consideration, Dr. Wahi rendered consultancy services or did consultancy work at the business premises of the assessee. On the other hand, there is evidence on the record which goes to prove that no consultancy work was done by Dr. B.N. Wahi during the assessment year under consideration. At page 33 of the paper book is the computation of income in the case of Dr. B.N. Wahi for the assessment year 1986-87. It showed that, for this assessment year, Dr. Wahi had commission income from sale of homoeopathic medicines besides interest income and income from house property. He did not have any income from any other source.

So, this document totally militates against the contention advanced before us on behalf of the assessee that while Dr. Wahi acted as the chief consultant, his brother, Dr. R.N. Wahi, worked as consultant. Dr.

R.N. Wahi did consultancy work and 50 per cent, of the receipts from such consultancy were given to the assessee as contended before us on behalf of the assessee and as is borne out from the statement of profit and loss account for the year ending on December 31, 1985, which is at page 13 of the paper book. Both Dr. B.N. Wahi and R.N. Wahi are income-tax assessees and are being assessed separately. They are separate entities. While considering the question whether Dr. B.N. Wahi rendefed any specific services during the year, he and his brother Dr.

R.N. Wahi cannot be regarded as a single entity as contended on behalf of the assessee. Here, it would be worthwhile to point out that, for the assessment year under consideration, Dr. R.N. Wahi was paid salary of Rs. 13,200, bonus amounting to Rs. 1,100 and commission amounting to Rs. 4,400. Thus, the total payment made to him amounted to Rs. 18,700.

As already pointed out above, Dr. B.N. Wahi was paid Rs. 90,540 as commission and he was not paid any salary, etc. The assessee cannot take the benefit of consultancy services rendered by Dr. R.N. Wahi in a bid to justify the payment of a huge commission to Dr. B.N. Wahi.

14. According to the assessee, Dr. B.N. Wahi is a qualified doctor entitled to hold a drug licence. The assessee has filed a copy of the drug licence which is placed at page 20 of the paper book. This is a certificate for renewal of licence to sell stock or exhibit for sale, or distribute homoeopathic medicines. In this certificate, the names of Dr. B.N. Wahi, Dr. R.N. Wahi and Shri Sunil Mohan are mentioned as the qualified persons in-charge. The fact that Dr. B.N. Wahi is one of the three qualified persons to hold a drug licence cannot go to justify the claim of the asses's0e for payment of commission to him at eight per cent, of gross sales. The general power of attorney executed in favour of Dr. B.N. Wahi is dated September 10, 1974. In this document, there is no mention of the assessee's business carried on under the name and style of Segal's Pharmacy. As a matter of fact, this document does not state that Dr. B.N. Wahi was looking after or was to look after the business of the assessee. On the basis of this document, it cannot, therefore, be said that Dr. B.N. Wahi was looking after the business of the assessee during the year.

15. In view of the definition of "relative" as given in section 2(41), the provisions of section 40A(2) would not be applicable to the facts of the case. However, the question whether commission paid to Dr. B.N.Wahi and his son should be allowed as a deduction in the computation of the business of the assessee has to be examined with reference to section 37. The onus is on the assessee to prove that the expenditure was laid out wholly and exclusively for the purpose of the business.

The fact that there was an oral agreement regarding payment of commission to Dr. Wahi and that payment was, in fact, made to him cannot legitimately lead to the conclusion that any specific services were rendered by him for which he was paid commission. The onus still lies on the assessee to show as to what specific services were rendered by Dr. B.N. Wahi during the assessment year under consideration for which he was paid commission at eight per cent, of gross sales. It has already been found above that, during the assessment year under consideration, Dr. B.N. Wahi did not render any consultancy services.

No doubt, in the past, commission paid to Dr. Wahi had been allowed.

Earlier, he was being paid commission at ten per cent, of gross sales.

We do not, however, know as to what were the relevant facts in the earlier years. For example, it is not known whether in the earlier years, any consultancy work was done by Dr. B.N. Wahi at the business premises of the assessee. May be, earlier he was rendering consultancy services which justified payment of commission to him at ten per cent, of gross sales. As rightly contended on behalf of the Revenue, every year is a separate unit of assessment. The principle of res judicata is not applicable to income-tax proceedings and, therefore, on the basis of the fact that similar commission had been paid to Dr. B.N. Wahi in the earlier years and had been allowed by the Department would not justify allowance of commission during the year under consideration when the matter was thoroughly examined by the Assessing Officer.

16. The assessee has not been able to adduce any evidence to show whether any specific services were rendered by Dr. B.N. Wahi during the year under consideration. It cannot, therefore, be said that the entire expenditure on payment of commission to Dr. B.N. Wahi was laid out wholly and exclusively for the purposes of business. We are, therefore, satisfied that the entire commission payment was not deductible under Section 37(1). We are further satisfied that the authorities below were justified in allowing commission paid to Dr. Wahi only at two per cent, of gross sales and disallowing the balance commission paid to him.

17. Diwakar Wahi, son of Dr. B.N. Wahi, was paid commission of Rs. 22,635 at two per cent, of gross sales. According to the assessee, since Dr. B.N. Wahi was not able to work as efficiently as he used to earlier because of his advanced age, he relinquished his share of commission in favour of his son, Diwakar Wahi. It was further submitted that Diwakar Wahi was helping his father and so commission was paid to him at two per cent, of gross sales. Diwakar Wahi was an apprentice (management). Umesh Segal was an apprentice (pharmacy work). He was paid a salary of Rs. 3,500 besides bonus amounting to Rs. 450 and unavailed of leave benefits amounting to Rs. 255. He was paid commission of Rs. 1,183 only. Payment of a larger commission to Diwakar Wahi as compared to the commission paid to Umesh Scgal cannot bo justified on the ground that, whereas the former was an apprentice (management), the latter was an apprentice (pharmacy work). It has not been shown to us that commission paid to Diwakar Wahi was commensurate with the services rendered by him or that services rendered by him were of more onerous nature as compared to the services rendered by Umesh Segal. From the facts and materials available on the record the inescapable conclusion is that Diwakar Wahi was paid substantial commission not on account of business expediency but for extraneous considerations which have nothing to do with the business activity of the assessee. So, the disallowance of one-half of the commission paid to him is fully justified as it could not be shown by the assessee that the entire commission paid to Diwakar Wahi was for the purpose of the business.

18. Some of the authorities cited on behalf of the assessee may be briefly considered. In J.K. Woollen Manufacturers [1969] 72 ITR 612 (SC), it has been held that, in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Income-tax Department. In the case of Aluminium Corporation of India Ltd, [1972] 86 ITR 11 (SC), the question which arose for consideration was whether commission paid to the agent was allowable. The Tribunal held that the commission paid to the agent was allowable as business expenditure. It was held by their Lordships of the Supreme Court that the Tribunal gave good reasons in support of its conclusion. The primary facts found by the Tribunal and the factual inferences therefrom were not open to review by the High Court. The decision in the case of Edward Keventer (P.) Ltd. [1972] 86 ITR 370 (Cal) was based on the facts of that case. In Shahzada Nand and Sons [1977] 108 ITR 358 (SC), the question of allowability of commission paid to an employee was considered with reference to section 36(1)(ii). The other decision cited on behalf of the assessee need not be discussed as the fate of each case depended on its own facts.

19. In view of the discussion made above, we find no force in this appeal which is, accordingly, dismissed.

20. It is my misfortune that I am not able to agree with the conclusions of my learned brother. I do not have to repeat the facts which are well brought out in his order. My reasoning for differing from the conclusion is contained in the following paragraphs.

21. Now, we have found that there is an agreement between the assessee, Mrs. Sehgal, and Dr. B.N. Wahi. This is a long standing agreement coming from 1952. Dr. Wahi in addition is also the power of attorney-holder for the assessee. He had been managing this business in all the earlier years. His remuneration for this purpose was a commission of ten per cent, of the turnover. In view of the long standing and established practice, we must accept that Dr. Wahi was entitled to a commission at 10 per cent. The details of the salary payments made by the assessee and furnished at page 15 of the paper book show that there is no other manager for running this business. As things are, therefore, the claim of the assessee that Dr. Wahi is entitled to ten per cent, of the turnover as commission cannot be challenged.

22. On account of the old age of Dr. Wahi, he was not able to give all his attention to the business as in the earlier years. Because of this, perhaps, he had brought in his brother, Dr. R.N. Wahi, to look after this business. As far as the assessee is concerned, the introduction of Dr. R.N. Wahi into the services has not resulted in any extra expenditure on commission. The commission payable for the management of the business continues to be ten per cent. only. But because Dr. B.N.Wahi had engaged the services of his son the ten per cent, commission payable has been split up among themselves and Dr. B.N. Wahi has taken eight per cent and his son two per cent. Since this internal arrangement between the father and son does not affect the assessee financially there could have been no objection from her for splitting the commission between father and son. Instead of paying the entire ten per cent, to Dr. Wahi, at his request it had been split and eight per cent, credited to Dr. B.N. Wahi's account and the balance two per cent, to his son's account. What is emphasised here is that the assessee is not incurring any new expenditure which she had not incurred in the prior years. At best, for the Department, action can be taken in the assessment of Dr. B.N. Wahi to tax the entire ten per cent, commission.

It may be a case of application of income after the income was earned.

23. It was also suggested that Dr. B.N. Wahi is no longer doing any consultancy services. This submission is factually incorrect. Just as there is an agreement between the assessee and Dr. Wahi for payment of ten per cent, of the sales as commission to Dr. Wahi, there is also a parallel agreement under which Dr. Wahi is allowed consultancy work in the premises on condition that 50 per cent, of the consultancy fees is paid to the assessee.

24. During the accounting year under consideration, the assessee had received Rs. 57,179 as her part of the consultancy fees. Thus, the actual commission paid to Dr. Wahi is a much lesser figure if we take into account 50 per cent, of the fees received by the assessee from Dr.

Wahi. However, we must also note one fact. At page 33 of the paper book, the computation of income of Dr. Wahi for the assessment year 1986-87 has been furnished. It shows only receipt of commission at Rs. 36,195. It does not show receipt of consultancy fees. Perhaps, the account of Dr. Wahi is a combined account showing the fees as well as the commission and certain expenses therefrom have been deducted to arrive at the figure of Rs. 36,195. However, merely because the figure of Rs. 36,195 is shown by him; we cannot assume that Dr. Wahi has not paid the assessee Rs. 57,179 as her part of the consultancy fees.

25. It may not be possible, as suggested by the Department, to hold that the Wahi brothers are one entity. They are definitely two different assessees. But there is no law which bars an assessee to share his commission agency with others. In fact, when managing agency of companies was prevalent before the amendment of the Companies Act, such sharing of the managing agency commission among unrelated persons was extremely common., What has to be seen is whether, by the introduction of the brother of Dr. Wahi, any extra burden is cast on the assessee. On that point, I am satisfied that there is no extra burden.

26. It is true that Dr. R.N. Wahi has himself paid salary and bonus but it is not the Department's case that he has not done any work individually. The salary payment to him and even the commission at one per cent, have been allowed by the Department. Therefore, the question whether the younger Dr. Wahi has done any services is not a matter of dispute and does not arise for consideration.

27. The learned Departmental Representative has pointed out that the contention of the assessee that Dr. Wahi's name has to be continued because the licence was standing in his name cannot be accepted because the names of other doctors are also included in the licence. This is a fact. The assessee had merely stated this as an additional factor in support of his contention. But, even without this supporting material, we have found that the assessee has an obligation to pay Dr. Wahi's a percentage of the turnover as commission.

28. As far as Dr. R.N. Wahi is concerned, a comparison has been made between the payments made to Dr. R.N. Wahi and the payments made to another employee by name Umesh Segal. There seems to be some confusion in the figure with regard to the payments to these two persons. From the chart given by the assessee, I find the salary paid to Diwakar Wahi is only Rs. 913. as against Rs. 3,550 to Umesh Scgal. No bonus was paid to Diwakar whereas a bonus of Rs. 450 was paid to Umesh Sehgal. Leave benefit of Rs. 255 was paid to Segal and none to Diwakar. Commission of Rs. 1,183 was paid to Umesh Scgal and none to Diwakar. The commission of Rs. 22,634 credited to his account is really the commission payable to Dr. B.N. Wahi, two per cent, of which has been split and credited to Diwakar at Dr. R.N. Wahi's instance. Thus there is no material to show that Diwakar was given any excessive remuneration.

29. I may now sum up : There is considerable material to show that the agreement between the assessee and Dr. B.N. Wahi is more than 25 years old and although not reduced to writing Dr. Wahi was entitled to ten per cent, of the sales. He had been associated with the business right from 1952. There is no one else appointed as manager of the business.

(1) Dr. Wahi has been allowed to do consultancy in the same premises and he is obliged to pay 50 per cent, of the consultancy fees to the assessee. (2) However, if the consultancy fee paid is set off against the commission received, the amount paid to Dr. Wahi is very reasonable. The fact that the commission receivable has been split up between him and his son has not cast any additional burden on the assessee. Under these circumstances, the disallowance was uncalled for and the appeal is allowed.

30. We, the Members of Delhi Bench 'A', have differed in our findings.

We refer the following point of difference to the President for reference to a Third Member : " Whether, on the facts and circumstances of the case, the assessee is entitled to the deduction of the full amount of the commission paid to Dr. B.N. Wahi' and Diwakar Wahi?" 31. The assessee in this appeal is an individual carrying on business in the purchase, sale and dispensing of homoeopathic medicines in the name and style of Segul's Pharmacy. On a turnover of Rs. 11,31,478 a gross profit of 26.74 per cent, was shown. Though it was a little less than that of the preceding year, it was accepted after verifying the books of account with reference to purchases and sales. Though the book results were accepted, the Income-tax Officer made a closer scrutiny of the expenses debited lo the profit and loss account and found that the assessee had claimed a total of Rs. 2,12,271 on account of salaries and commission. Included in the payment of commission was an amount of Rs. 90,539.86 being the commission paid to one Dr, B.N. Wahi. In response to the enquiries made by the Income-tax Officer as to the justification of this payment of commission, it was submitted that there was no agreement entered into with Dr. B.N. Wahi but that he was holding a general power of attorney to look after the business right from 1952, that he was not drawing any salary but was paid commission on gross sales and that these facts were verified by the Income-tax Officer in greater detail while making the assessment for the assessment year 1984-85, that the payment of commission was for the services rendered by Dr. B.N. Wahi for the promotion of the business which is highly technical and required for its sustenance and growth a complete faith and confidence in the doctor selling and dispensing the medicines and also advising the patients as and when necessary. It was argued that the payment of. commission was nothing new, nothing abnormal and should be allowed as it was an expenditure incurred wholly and exclusively for the sole purpose of the business. Somehow, this explanation did not satisfy the Assessing Officer. He insisted upon existence of documentary evidence in the shape of an agreement to allow the commission. The fact that there was no agreement entered into, according to the Assessing Officer, was fatal to the allowance of the claim. When there was sufficient staff to carry on the business, there was no need for such a huge commission to be paid to one doctor nor was it commensurate with the work done by the doctor as the doctor was not acting either as a salesman or as a representative. There was also no record to show the orders procured by Dr. B.N. Wahi to justify the payment of commission. The contention that the commission was being paid to him for the last so many years and was being allowed as a deduction and the rate of commission remained more or less constant and that the amount varied because of fluctuation in turnover did not appeal to the Assessing Officer as a relevant consideration for the allowance of the claim. However, the Assessing Officer, restricting the payment of commission to two per cent, on the total sales effected by the assessee, disallowed the rest of it which came to Rs. 67,911.

32. There is one Shri Diwakar Wahi to whom also a commission of Rs. 23,548 was paid. He is the son of Dr. B.N. Wahi. The Income-tax Officer found that he was only an apprentice. Even though there are other apprentices, the amount of commission paid to Shri Diwakar Wahi was the highest and there was not enough justification for the payment of a higher commission to Shri Diwakar Wahi. For that reason, he allowed only a commission of one per cent, to Shri Diwakar Wahi and disallowed the balance which worked out to Rs. 11,321. Thus, a total commission of Rs. 79,232 was disallowed by the Income-tax Officer.

33. Aggrieved by this disallowance, the assessee appealed to the Commissioner (Appeals) but in vain. He upheld the disallowance of the commission agreeing with almost all the reasons given by the Assessing Officer particularly the fact that this commission allowed in the past would not render the case of the assessee any stronger because the doctrine of res judicata does not apply to income-tax proceedings.

34. There was then a further appeal to the Tribunal, before which authority the same contentions were reiterated. The learned Judicial Member agreed with the view of the Department and confirmed the disallowance while the learned Accountant Member, the then Vice-President, agreed with the view of the assessee and allowed the payment. The learned Accountant Member, the then Vice President, held that there was considerable material to show that the agreement between the assessee and Dr. B.N. Wahi was more than 25 years old and although not reduced into writing, by practice, he was entitled to ten per cent, commission on sales. He was associated with the business right from 1952. It is significant to note that there was no one else as manager of the business. Dr. B.N. Wahi was also allowed to do consultancy in the same premises by agreeing to pay 50 per cent, of the consultancy fee to the assessee. What was paid to the son of Dr. B.N. Wahi by way of commission was only a part of the commission payable to Dr. B.N.Wahi diverted to his son so that the total commission paid to both father and the son remained the same as in the earlier years. As against receiving ten per cent, commission, the father received eight per cent, and the son two per cent. There was, therefore, no justification to consider this payment of commission as either uncalled for or not required for the purpose of the business.

35. But the learned Judicial Member was of a different opinion. Though he held that the mere absence of a written agreement would not justify the disallowance of a part of the commission paid to Dr. B.N. Wahi, the fact that ten per cent, of the gross sales was being paid to Dr. B.N.Wahi as commission in the past shows that there was an oral agreement between the assessee and Dr. B.N. Wahi, but still there was nothing on record to suggest that, during the assessment year under consideration, Dr. B.N. Wahi rendered consultancy services or did consultancy work at the business premises of the assessee. On the other hand, there was evidence to show that no consultancy work was done by Dr. B.N. Wahi during the year under consideration. Reliance, for this conclusion, was placed upon the statement showing the computation of income in the case of Dr. B.N. Wahi for the assessment year 1986-87 where no income from consultancy was shown. There was a brother of Dr. B.N. Wahi called Dr.

R.N. Wahi, who was also working as a consultant. It was Dr. R.N. Wahi, who did consultancy work and paid 50 per cent, of the receipts to the assessee and there was nothing else to show that Dr. B.N. Wahi was acting either as a consultant or as a chief consultant. While Dr. R.N.Wahi was acting as a consultant, he was paid only a commission of Rs. 4,400 besides a salary of Rs. 13,200 and a small amount of bonus, Dr.

B.N. Wahi was paid a commission of Rs. 90,539, which was quite disproportionate to the services claimed to have been rendered by him though not proved. The assessee cannot, therefore, plead for taking the benefit of the consultancy services rendered by Dr. R.N. Wahi to justify the payment of commission to Dr. B.N. Wahi. An argument was advanced that Dr. B.N. Wahi was a qualified doctor entitled to drug licence and the drug licence was produced but the learned Judicial Member held that there was only a renewal of the drug licence to sell stock or exhibit for sale or distribute homoeopathic medicines and the names of three doctors were mentioned therein including Dr. B.N. Wahi and merely because Dr. B.N. Wahi was one of the three qualified persons shown in the drug licence, that by itself does not justify the claim of the assessee for the payment of commission of as high as eight per cent, of sales. Even though there was a general power of attorney executed in favour of Dr. B.N. Wahi on September 10, 1974, there was no mention in that document of anything about the payment of commission.

The onus was on the assessee to prove that the expenditure was laid out wholly and exclusively for the purpose of the business and that onus was not discharged by merely proving the existence of an oral agreement but it must be shown that specific services were rendered by Dr. B.N.Wahi. He upheld the principle of non-application of the doctrine of res judicata to income-tax proceedings. For more or less similar reasons, he upheld the disallowance of the commission paid to Shri Diwakar Wahi, son of Dr. B.N. Wahi. Certain authorities were cited before the Tribunal in support of its contention. The learned Judicial Member distinguished all of them and held that those decisions do not advance the case of the assessee.

36. Thus, on account of the difference of opinion that arose between the Members on the question of allowance of this commission, they framed the difference of opinion in the following words and referred it to me as third Member under section "255(4) of the Income-tax Act, 1961 : " Whether, on the facts and circumstances of the case, the assessee is entitled to the deduction of the full amount of the commission paid to Dr. B. N: Wahi and Diwakar Wahi ?" 37. I have heard at great length both Shri K. Sampath for the assessee and Shri Sandeep Tandon for the Department. The assessee in this case is Smt. Godavari Devi, a widow aged about 80 years. Her husband, Dr.

R.N. Sehgal who was carrying on the business of consultancy in homoeopathy, died in 1949. Thereafter, certain disputes arose in the family as a consequence of which the business was closed and again reopened in 1952 at the behest, intervention and promised assistance of Dr. B.N. Wahi in 1952. Though there was a general power of attorney executed in favour of Dr. B.N. Wahi to be in charge of the business affairs and conduct it to the greatest advantage of the assessee, he was not to be paid any remuneration other than commission. The agreement was that the margin of gross profit on sales should be 30 per cent, of which ten per cent, shall be allowed towards expenses leaving a balance of 20 per cent., which is to be shared by the assessee and Dr. B.N. Wahi equally, each getting ten per cent. This was the arrangement that went on for years. Later on, it was converted to ten per cent, of commission on gross sales. This arrangement was nothing new, nothing unusual, nothing introduced by way of a tax planning measure but a routinely accepted way of remunerating a person who was conducting the affairs of the business on behalf of the assessee. Dr.

B.N. Wahi was also a qualified doctor having obtained a diploma of B.A. M. S. in homoeopathic medicines some time in 1947. More or less five years after qualification, he virtually started the profession in the name of the assessee's business helping both himself and the assessee who was closely related to him and who was in dire circumstances on the demise of her husband. The assessee had a son but he was mentally handicapped and, therefore, the responsibility of'Dr. B.N. Wahi to look after the family had become greater and with that altruistic purpose, he started the profession by agreeing to share a part of the profit to the lady for having given him a readymade business premises.

Homoeopathic medicine was in a nascent stage in 1952 and it required a great amount of dedication and commitment to popularize that system of medicine with the public which Dr. B.N. Wahi did over a period of years. He thus built up this business and the profession and the sales and such a person has to be remunerated for the services rendered and it cannot be that he rendered services in the last year and did not do any service or kept quiet or became useless to the profession or decrepit in the year under assessment. His continued service and maturity in medicine was available to the business and it is proved by the fact that the business was flourishing, judged by the fact of increase in turnover, increase in personnel. Dr. B.N. Wahi was also acting as a consultant and it is not that exclusively Dr. R.N. Wahi was the only consultant. For the purpose of encouraging the brother for consultancy and for business expediency with a view to help the lady, i.e., the assessee, even the consultancy charges charged by Dr. B.N.Wahi were raised in the name of Dr. R.N. Wahi, i.e., Dr. B.N. Wahi was helping Dr. R.N. Wahi in the consultancy work without receiving any remuneration. The allegation that Dr. B.N. Wahi did not render services was not correct because there were as many as 20,000 bills signed by Dr. B.N. Wahi, which demonstrates that services were rendered by Dr.

B.N. Wahi and he did not sit idle in order that it may be said that the commission was paid to him just for doing nothing as if it is a pensionary benefit. These facts were all before the authorities below in one form or the other, at one stage or the other and they were not given, in my opinion, due weight. The Departmental Representative, in the course of hearing also, was not able to contradict. The fact that Dr. B.N. Wahi was rendering services from 1952 onwards without any interruption and the commission was being paid to him in the same manner as in the earlier years and having regard to the fact that the commission was allowed as a deduction in the past and having regard to the fact that there was ample evidence to show in the shape of'bills that services were rendered by Dr. B.N. Wahi, that the maturity of Dr.

B.N. Wahi was available to the advantage and promotion of the business, it could not be said that the payment of commission to Dr. B.N. Wahi was not for the purpose of the business and it could be disallowed on the ground that there was no proof of rendering of any service in this year. The learned Judicial Member agreed with almost all the points raised by the learned Accountant Member except with the point that there was no proof of any specific services rendered by Dr. B.N. Wahi in this year. As I have mentioned above, this is not a factually correct statement. A person who is in regular employment for over 30 years could not be expected to have retired from the business to say that he was not rendering any more services. The subsequent conduct also would prove that Dr. B.N. Wahi was rendering services. It was said that he was still active even at the age of 60 years. This could not, therefore, have been made a reason to disallow the commission which was otherwise allowed in the past and allowable in the present year also.

38. As regards Shri Diwakar Wahi, it was said that he is a chartered accountant and that he was qualified in I. A. S. also but preferred to help his father in the business of purchase and sale of homoeopathic medicines. What was paid to him was not anything out of the profits that would otherwise have gone to the assessee but out of the commission payable to Dr. B.N. Wahi. In other words, the commission payable to Dr. B.N. Wahi was only split up, a major part going to Dr.

B.N. Wahi and a smaller part going to Shri Diwakar Wahi. Since the whole of the commission of ten per cent, was an allowable deduction judged by the allowance of it in the past and since the same amount of commission was paid this year also but to two persons instead of one and in view of the fact that the Department had accepted that Shri Diwakar Wahi was also a qualified person entitled to the commission and allowed one per cent, commission, there is no justification to disallow the balance of one per cent., which was paid to him out of the commission of Dr. B.N. Wahi. It may be a matter of consideration in the assessment of Dr. B.N. Wahi whether the payment of two per cent, commission to his son was a proper deduction in computing his income but that could not be made a reason to disallow the commission in so far as the computation of the assessee's income is concerned. Much was made about the payment of consultancy commission to Dr. R.N. Wahi that when he was paid a meagre sum of Rs. 4,400, why should Dr. B.N. Wahi be paid Rs. 90,539. It is to be remembered in this context that Dr. B.N.Wahi is a different entity from Dr. R.N. Wahi and Dr. R.N. Wahi was performing consultancy services, that he was also helped by Dr. B.N.Wahi in that regard and the remuneration paid to Dr. B.N. Wahi was not for consultation as such but for the overall supervision of the business and he was remunerated at ten per cent, of the gross sales and if that arrangement was not a colourable transaction or a sham or fictitious, the quantum of commission that became payable as a consequence of increase in the turnover could not be compared with the consultancy services/charges of Dr. R.N. Wahi, which is always bound to be much lower than the sales commission. This disparity could not have been made a reason for the disallowance of the commission. Even the Department had accepted that, out of the consultancy services, Dr. B.N.Wahi does not get anything but the assessee gets about 50 per cent, and that was the arrangement in existence for the last ten years.

39. There has been some discussion about the application of res judicata to income-tax proceedings presuming it to be a rule of inflexible application. The rule of res judicata or estoppel is a rule of evidence and it is well known that, in tax matters, ordinarily, these principles do not apply particularly against a statute.

Nevertheless, it is well recognised that the departmental adjudications are done by a hierarchy of officers. If a matter has once been adjudicated and decided upon the merits, it is not possible to reopen or readjudicate it except on grounds of appearance of fresh evidence.

The question at issue before the tax authorities is distinct and separate in respect of each assessment year. The conclusion arrived at in respect of one year cannot preclude either the Department or the assessee from seeking to depart therefrom in a subsequent year. Thus, there is no res judicata in tax matters and the Assessing Officers are not bound to take the same view as in the previous years of assessment of the assessee. This is based on the principle that the findings given in an year of assessment would be good to determine the tax liability of that year upon the facts found and admitted before or by the Income-tax Officer for that particular year. There is no such thing like lis or controversy between the Assessing Officer and the assessee.

It is, therefore, difficult, to attribute to an assessment a permanence so as to provide an estoppel by res judicata but this principle has certain exceptions, namely, the earlier findings would be good and cogent evidence for subsequent years when the same question falls to be determined. If no fresh facts come to light on investigation, the Assessing Officer is not entitled to reopen the same question on mere grounds of suspicion or change of opinion. This is based on the principles of natural justice and expediency. There is a large amount of authority for the proposition that a finding arrived at in a subsequent year ignoring, without material, the conclusions arrived at earlier would be vitiated in law (see Ipoh (M.M.) v. CIT [1968] 67 ITR 106 (SC) and Dalhousie Investment Trust Co. Ltd. v. CIT [1968] 68 ITR 486 (SC). In other words, the application of the doctrine of res judicata depends upon the emergence or surfacing of new facts. In the absence of surfacing of new facts, it may not be expedient or possible to change the earlier decisions. In this case, no new facts were found for departing from the earlier decision. The matter was examined in depth in the assessment year 1984-85 and a conclusion was reached in favour of the assessee. That conclusion should continue to subsist, in the absence of any fresh material. The only material that was relied upon to deviate from the earlier finding was the absence of evidence that Dr. B.N. Wahi did render any service. This was found to be factually incorrect. Thus, the material on record continued to be the same as in the earlier years. Therefore, the earlier finding would become good and cogent evidence for this year for the determination of the same question. Thus, the doctrine of res judicata as applied to income-tax proceedings has to be understood, in my opinion, in the manner indicated above.

40. For these reasons, having regard to the past accepted practice, which was found to be genuine and for the further reason that there was ample evidence to show that Dr. B.N. Wahi was overall in charge of the business and was taking an active part in the business and having regard to the fact that he was also having a general power of attorney on behalf of the assessee and having regard to the further fact that the absence of agreement to pay commission was not considered by both the Members as a point against the assessee, I am of the opinion that, on the facts and circumstances of the case and having regard to the totality of the circumstances, I agree with the view expressed by the learned Vice President, the Accountant Member and hold that there was no justification for the disallowance of the commission paid to Dr.

B.N. Wahi and Shri Diwakar Wahi.

41. The matter will now go before the regular Bench for decision according to the majority opinion.