Madras High Court
V.S.T. Motors Ltd. vs Commissioner Of Income-Tax on 5 September, 2002
Equivalent citations: [2003]260ITR440(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, K. Raviraja Pandian
JUDGMENT R. Jayasimha Babu, J.
1. Two questions have been referred to us at the instance of the assessee. The questions are, "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the payments made to K. S. Transports attract the provisions of Section 40A(2) ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in sustaining the disallowance out of the amounts paid to K. S. Transport on the ground it was excessive and unreasonable ?"
2. The assessment years are 1985-86 and 1986-87. The assessee is a company. It carries on business as agents for trucks manufactured by Telco. It also maintains a stock yard at Chennai. For the purpose of transporting the vehicles from the stock yard to the assessee's show room as also for delivering the vehicles to the customers at their place of business, the assessee had engaged a firm, K. S. Transports, to which it was paying a sum of Rs. 100 per vehicle. That sum was revised with effect from January 1, 1985, at Rs. 200 per vehicle after the assessee received a request from that K. S. Transports on June 20, 1984, requesting for revision of the transport charge.
3. The firm, K. S. Transports, consisted of four partners one of whom is a director of the assessee-company, two partners are ladies who are the spouses of two directors and the fourth partner is the son of another director. The Assessing Officer held that Section 40A(2)(b) was attracted to the assessment of the assessee's income as the 100 per cent. increase in the transport charges paid to the firm consisting of a director and other relatives, was excessive and unreasonable having regard to the value of the services rendered by that firm to the company. He, therefore, disallowed that excess payment. On appeal, the Commissioner upheld the order of the Assessing Officer and the order of the Commissioner on further appeal, was affirmed by the Tribunal.
4. For the assessment year 1985-86, after the assessee's appeal against the order of assessment was allowed in part by the Commissioner who reduced the extent of the disallowance by 50 per cent. having regard to the increase in the cost of diesel and oil and other costs in that year, that order of the Commissioner was affirmed by the Tribunal.
5. As the partners of the firm are admittedly the director, spouses of two of the directors and the son of a director, Section 40A is clearly attracted as all these persons were covered by one or the other sub-clause of Section 40A(2)(b). The first question is, therefore, answered against the assessee and in favour of the Revenue.
6. So far as the second question is concerned, having perused the order of the Commissioner which is affirmed by the Tribunal, we find that it is based upon material and that the disallowance made on the ground that the expenditure was excessive and unreasonable was justified. The second question is also answered against the assessee and in favour of the Revenue.