The Judgment of the Court was delivered by

K.A Thanikkachalam, J.:— In accordance with the direction given by this court, the Tribunal referred the following three questions for the opinion of this court under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”):

“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the rental income received by the assessee from letting out of the portions in the property used for its business purpose should be treated as business income and not under the head ‘Income from property and the repairs to that building’ should be considered under the head ‘Business’?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 34,100 being commission paid to V.S.T Padmanabhan and Bros., is an admissible deduction?

(3) Whether the Appellate Tribunal's view that V.S.T Padmanabhan and Bros., had rendered services to the assessee-company to warrant payment of commission of Rs. 34,100 is based on relevant and valid materials and is sustainable in law?”

2. The assessee is a company carrying on business as authorised dealers in Tata diesel vehicles at No. 34, Mount Road, Madras-2. The building consisted of three floors including the ground floor. While the ground floor and the first floor were used for the assessee's business, the second floor was let out to the Government department. In the assessment years 1975-76 and 1976-77, the assessee claimed that the rental receipts from the second floor should be considered under the head “Business” as the entire property was constructed with a view to use the same for the purpose of its business and that the surplus accommodation, due to its shifting of branches to outside Madras, available was let out on lease and, therefore, the rental income should be considered as business income. The Income-tax Officer did not accept the assessee's contention and treated this income from letting out of the building under the head “Property” and thereby computed the income for both the years at Rs. 24,065. Accordingly, the Income-tax Officer disallowed a sum of Rs. 4,773 claimed under the head “Business” towards building repair.

3. In the assessment for the assessment year 1975-76, the Income-tax Officer also disallowed a sum of Rs. 34,100 being the commission paid to V.T Padmanabhan and Bros., for the reasons stated by him in his assessment order. He found that V.T Padmanabhan and Bros., is a firm in which the director of the assessee-company is a partner and that even though there is an agreement to pay commission, the said firm did not render any service to the assessee-cpmpany. After investigation into the facts he came to the conclusion that the agreement was only a fictitious one, not intended to be acted upon except for book entries in the accounts, that the alleged payment of commission is nothing but a diversion of profits for non-business consideration, that the expenditure was not proved to have been incurred for any commercial expediency and that there was no evidence to prove that the firm had done any service to the assessee to warrant payment of commission by the assessee. The assessments for these two years were completed on a total income of Rs. 2,34,250 and Rs. 1,81,200, respectively.

4. On appeal, the Commissioner of Income-tax (Appeals), following the reasoning of the Appellate Tribunal given in respect of the assessment year 1971-72 for treating the income from letting out of workshop as business income, held that the rental income from the property should also be assessed as business income and the amount claimed as repairs to building should be allowed. As regards the disallowance of commission of Rs. 34,100 paid to V.T Padmanabhan and Bros., the Commissioner of Income-tax (Appeals), following his order in the case of India Garage, a sister concern of the assessee, held that the commission paid should be allowed as a deduction.

5. Aggrieved, the Department filed an appeal before the Appellate Tribunal. The Tribunal, on considering the facts, confirmed the order of the Commissioner of Income-tax (Appeals) and the Departmental appeals were dismissed.

6. Before us learned standing counsel appearing for the Department submitted that the rent received by letting out the second floor to the Government department should be assessed under the head “Income from property” and it cannot be assessed under the head “Business income”. According to learned standing counsel, the house property should be assessed under the provisions of section 22 of the Act, since the second floor is, not being used for the business of the assessee. It was further submitted that the assessee had no intention to exploit the second floor of the building as a commercial asset. According to learned standing counsel, the second floor was let out to the Government department because the assessee found that the second floor is a surplus portion, which cannot be utilised by the assessee for its business purposes. Inasmuch as the surplus not required for the assessee's business was let out, it should be assessed under section 22 of the Act. Letting out of the property is not the business of the assessee. Letting out the second floor which is surplus, would not amount to exploitation of a commercial asset. For these reasons, it was submitted that the Tribunal was not correct in holding that the second floor, which was let out by the assessee and the rental income derived therefrom should be assessed as business income.

7. On the other hand, learned counsel appearing for the assessee submitted that the property itself is built up for the purpose of carrying on the business. The assessee is a dealer in Tata diesel vehicles. The assessee is utilising the ground floor and the first floor for its own business. The second floor is let out to a Government department. Since the asset is a commercial asset, the income derived therefrom should be treated as “business income”. Once the asset is a commercial asset, thereafter it is open to the assessee to exploit the commercial asset in whichever manner is advantageous to the assessee. Once the property is characterised as a commercial asset, thereafter it cannot be assessed as a house property under section 22 of the Act. Admittedly, the major portion of the building is being used for commercial purposes by the assessee for its own use. When the entire property is a commercial asset, a portion out of the said commercial property let out and the rental income derived therefrom would also constitute “business income”. Therefore, it was submitted that the Department was not correct in stating that the rental income received from the second floor is not “business income”, and therefore it should be assessed under the head “Property income”.

8. We have heard both learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee.

9. The Supreme Court in CEPT v. Shri Lahshmi Silk Mills, [1951] 20 ITR 451, while considering the provisions of section 2(5) of the Excess Profits Tax Act, 1940, held that: “if a commercial asset is not capable of being used as such, then its being let out to others does not result in an income, which is the income of the business, but it cannot be said that an asset which was acquired and used for the purpose of the business, ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. The view that in order to constitute business income, the commercial asset must at the time it was let out be in a condition to be used as a commercial asset by the assessee himself is not correct.”

10. Reliance was placed upon the decision of this court rendered in CIT v. Pandyan Bank Ltd., [1969] 71 ITR 707 in order to support the contention put forward by the Department. In the abovesaid decision, the facts are as under (headnote):

“The assessee-bank owned a building which was air-conditioned. A small portion of the said building had been let out to two tenants, both of whom were entitled to air-condition facilities under the terms of the tenancy. In respect of the cost of the machinery for the air-conditioning, the assessee claimed both depreciation and development rebate. The claim for development rebate was disallowed by the officer and the Appellate Assistant Commissioner on the ground that as a portion of the building had been let out, the air-conditioning machinery or plant was not wholly used for the purpose of the business of the assessee. The Tribunal, however, granted the claim on the view that, as the plant was one whole serving the entire premises, it could not be bifurcated to serve portions of the premises and hence the plant was used for the purpose of the business.”

11. On a reference, this court held that “though the letting of a portion of the premises by the assessee may be regarded as part of its business under the provisions of the Banking Companies Act, under the Income-tax Act, income from such letting will only be regarded as income from property and not from business”.

12. In the abovesaid decision, this court pointed out where the property forms part of stock-in-trade of a business, how the income derived therefrom will be regarded does not fall for consideration. In the above-cited decision, this court came to the said conclusion because letting out of the property cannot be considered as a business, even though according to the Banking Companies Act, such an activity is a business activity. Therefore, this decision would not be applicable to the facts arising in the present case, since the property let out by the assessee herein is a commercial asset.

13. In CIT v. New India Industries Ltd., [1993] 201 ITR 208, the Gujarat High Court enumerated the following nine tests in order to find out whether income derived from letting out an asset is business income or income from property (headnote):

“(i) no general principle could be laid down which is applicable to all cases and each case has to be decided on its own facts and circumstances;

(ii) whether an income falls under one head or another has to be decided according to the common notions of a practical and reasonable man, for the Act does not provide any guidance in the matter;

(iii) in each case, what has to be seen is whether the asset is being exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two is a narrow one and has to depend on certain facts peculiar to each case. Pure and simple, commercial assets like machinery, plant, tools, industrial sheds or godowns having high business potential stand on a different footing from assets like land or building;

(iv) if an assessee derived income from a commercial asset which is capable of being used as a commercial asset, then it is income from his business, whether he uses that commercial asset himself or lets it out to somebody else to be used. The asset would not cease to be a commercial asset simply because temporarily it was put out of use or it was let out to another person for his use;

(v) so long as the commercial asset is capable of being exploited as such, its income is business income irrespective of the manner in which the asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else;

(vi) if the commercial asset is not capable of being used as such or as a commercial asset, then its being let out to others does not result in the accrual of business income;

(vii) when the assessee has stopped doing business altogether and when the asset ceases to have the character of a business or a commercial asset, it becomes a capital asset. Qua such asset, the assessee is not carrying on any business. As the owner of the asset, he may exploit such asset but, in such circumstances, income which he receives is no longer business income but income from property owned by him;

(viii) when the asset is in the nature of land or building capable of being used for any other purpose and when the assessee ceases to use it as a commercial asset either himself or even through others, the income derived by him by renting out the same would more appropriately fall under the head ‘Income from house property’ as, like any other owner of property, he gets income from that property as owner. In such cases, it is not the factum of his business or commercial activity which brings income to him but it is his investment in property or his ownership of property which brings income to him. In such cases, the leasing of property itself is the activity. It is leased with a view to produce income, a transaction quite apart from the ordinary business activities of the assessee;

(ix) in deciding whether an assessee dealt with its property as owner or as a businessman or prudent man of commerce, one must see not the form which it gave to the transaction but the substance of the matter. It will be essential to find out the user of the property and the character in which that property is used. Ownership of property and leasing it out may be done as a part of business or it may be done as a landowner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. If the dominant object of leasing out is incidental to and for the purposes of the assessee's business, the income would be business income. What was to be discovered is whether the property is subservient to the main business of the assessee.”

14. In the abovesaid decision, the Gujarat High Court, while considering the decision of the Supreme Court in the case of CEPT v. Lakshmi Silk Mills Ltd., [1951] 20 ITR 451 (SC), culled out the four principles adumbrated by the Supreme Court, which are enumerated as under (page 236 of 201 ITR):

“The Supreme Court firstly found that no general principle could be laid down which is applicable to all cases and each case has to be decided on its own circumstances. The court also noticed that the decisions of the English courts are not always helpful in dealing with matters arising under the Indian laws.

The court secondly found that, if an assessee derives income from a commercial asset which is capable of being used as a commercial asset, then it is income from his business whether he uses that commercial asset himself or lets it out to somebody else to be used. The asset would not cease to be a commercial asset simply because temporarily it was put out of use or it was let out to another person for his use.

The court thirdly found that, so long as the commercial asset is capable of being exploited as such, its income is business income irrespective of the manner in which the asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else.

Fourthly, the court noticed that if the commercial asset is not capable of being used as such or as a commercial asset, then its being let out to others does not result in accrual of business income.”

15. In the case of Parekh Traders v. Commissioner Of Income-Tax, Poona., [1984] 150 ITR 310, the Bombay High Court, while considering the provisions of section 23(1) of the Income-tax Act, 1961, held that (headnote): “The heads of income enumerated in section 14 of the Income-tax Act are mutually exclusive and each specific head covers items of income arising from the specific source. Income derived as rent from property must be computed under that specific head regardless of the fact that that property had at one time been utilised by the assessee for business purposes. Such property cannot be treated as a business asset and the rent thereof as income from business. A distinction must be drawn between the letting out of land or house property on thef one hand and of plant or machinery on the other. The latter are commercial assets and their exploitation, even by the means of letting out yields income from business. Income yielded by letting out the former is income from property”. A similar view was also taken by the Bombay High Court in Maharashtra Fertilisers and Chemicals v. CIT, [1984] 150 ITR 317. This decision would lead to the conclusion that if the property itself is a commercial asset, then letting out such property and deriving income therefrom would be business income. The fact that the said property was once utilised for the business and thereafter was discontinued and ultimately let out for rent, would not be considered as a commercial asset and the rental income received therefrom cannot be termed as business income.

16. In the decision in O. Rm. S.V Firm v. CIT, [1960] 39 ITR 327 (Mad), the firm carried on a money-lending business. In the course of its business, it acquired several items of immovable properties, which it always treated as part of its stock-in-trade. In computing its income for the year of account ending April 12, 1948, for income-tax purposes, the income from these items of property was computed under section 9 of the Income-tax Act. The question was whether the income from properties could be treated as profits of the business assessable under the Business Profits Tax Act, 1947. While answering this question, this court held that neither the proviso to section 2(3) of the Business Profits Tax Act, nor rule 3 of Schedule I to that Act applied to the assessee whose business was only money-lending; that what fell within the scope of section 4 of the Business Profits Tax Act was only such profits from the business as could be computed under section 10 of the Income-tax Act, any other item of income or profits of a person, who carried on a business and even any other item of income which could be traced to the business activities of that person stood excluded from the scope of section 4 of the Business Profits Tax Act. Inasmuch as the business of the assessee was not letting out of the property, this court held that the income derived from the house property cannot be assessed under the head “Business income”. This decision is also distinguishable on the facts arising in the present case.

17. In Anaihar Traders and Estates (P.) Ltd. (No. 1) v. CIT, [1990] 186 ITR 175 (Mad), the main object of the assessee-company as could be seen from clause 3(A)(i) of its memorandum of association was to purchase, take on lease or mortgage or otherwise acquire and possess lands, buildings or real estates, freehold or otherwise, lands with their superstructures and appurtenances, whether movable or immovable. In order to attain the aforesaid main object of the company, clause 3(B)(i) of the memorandum of association stated that an incidental or ancillary object was to undertake to sell or lease, or mortgage the whole or part of any property, land, buildings, structures, movable or immovable of the company in furtherance of its objects. For the assessment years 1969-70 and 1970-71, the assessee showed the rental income from properties acquired by it as income from business.

18. Inasmuch as the object of the company was to acquire and possess properties and since there was no indication that the assessee-company intended to sell those properties or even turn them to account by way of leasing them as part of its business activities, this court held that the properties were not held by the assessee as part of the business assets and the income therefrom was assessable as income from property. This conclusion was arrived at by this court in the aforesaid decision because there was no evidence to show that the assessee-company intended to sell the properties, which were acquired. Therefore, this decision also would not be applicable to the facts arising in the present case, where the assessee is exploiting the commercial asset by letting it out to a third party and deriving rental income therefrom.

19. In the case of Rampur Industries Ltd. v. Commissioner Of Income-Tax, U.P*, [1971] 82 ITR 23 (All), the assessee-company which was doing rice milling business had previously been running an oil mill and soap manufacturing business, which were discontinued. It let out to the Government for storing grains certain godowns, which it was previously using in its discontinued business. Oh these facts, the Allahabad High Court held that inasmuch as the assessee-company was not established for earning profit from the godowns and the godowns were let out incidentally, the rent from the godowns was clearly assessable as income from property for the purpose of section 9 of the Act. According to the facts arising in the abovesaid decision also, the assessee did not exploit the godowns for commercial purposes. The assessee, in fact, discontinued its business and using the godowns in its discontinued business. Therefore, the Allahabad High Court come to the conclusion that the income derived from the letting out of the godowns should be assessed under head “Income from property”. Therefore, this decision also would render no assistance to the Department to contend that in the present case the rental income derived from the property should be assessed as income from property.

20. According to the facts arising in the case of East India Housing and Land Development Trust Ltd. v. CIT, [1961] 42 ITR 49 (SC), the assessee-company, which was incorporated with the objects of buying and developing landed properties and promoting and developing markets, purchased ten bighas of land in the town of Calcutta and set up a market therein. The question was whether the income realised from the tenants of the shops and stalls was liable to be taxed as “business income” under section 10 of the Income-tax Act or income from property under section 9. While answering this question, the Supreme Court held that the income derived by the company from shops and stalls was income received from property and fell under the specific head described in section 9. The character of that income was not altered because it was received by a company formed with the object of developing and setting up markets. Nor because of the fact that the company was required to obtain a licence from the Calcutta Municipality to maintain sanitary and other services and for that purpose had to maintain staff and to incur expenditure, did the income become “profits or gains” from business within the meaning of section 10. Nor was the character of the income altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants. The primary source of income from the stalls was the occupation of the stalls and it was a matter of little moment that the occupation which was the source of income was temporary.

21. Inasmuch as the business of the assessee was promoting and developing markets and inasmuch as it is not the business of the company for letting out the property and earning the rental income, the Supreme Court held that the income derived from the occupants of the shops should be taxed as income from property, since the property in question has no nexus to the business carried on by the assessee. Therefore, this decision is also distinguishable on facts.

22. According to the facts arising in the decision in Punjab National Bank Ltd. v. Commissioner Of Income-Tax, Delhi I., [1983] 141 ITR 886 (Delhi), the assessee bank owned a building of six floors, five of which were occupied by the assessee for the purpose of its business and its head office was located there. The sixth floor was let out to a party whose management had some connection with the management of the bank. The whole building was fitted with an air-conditioning plant and there were also lifts operating. The assessee claimed full depreciation and development rebate.

23. While considering this aspect, the Delhi High Court held that since the tenant of the sixth floor was using that portion of the building for his own purpose, the letting was not different from any ordinary letting out of a building. Section 9 of the Indian Income-tax Act, 1922, clearly implied the division of the building into two portions; one portion which was used by the assessee itself for its business and the other portion, which was let out. Sections 9 and 10 were mutually exclusive and depreciation was allowable under section 10(2) only in respect of the portion of the building used by the assessee for its business. Depreciation was, therefore, allowable only on five-sixths of the building and not the entire building. It was further held that even if a portion is let out to a tenant, it would be in the bank's own used and no question of selling the same will arise under this provision. The provisipn actually applies only in cases where a bank acquires a building otherwise than for its own use.

24. This decision is concerned with allowance of full depreciation and development rebate. Therefore, it is necessary for the court to consider who is said to be the actual user in order to get the benefit of full depreciation and development rebate. It is under this context, the Delhi High Court held that inasmuch there is no prohibition under section 9 of the Banking Regulation Act, 1949, to let out some extra portion left, the letting out portion should also be considered as being used by the assessee therefore, the decision rendered while considering the allowance of full depreciation and development rebate may not be useful for the purpose of deciding the issue arising in the present case.

25. According to the facts arising in Narayandas Kishandutt v. CIT, [1984] 149 ITR 636 (MP), the assessee, which carried on business at its head office and at a number of branches, claimed during the relevant assessment year that the rental income from the letting of the various godowns and factories should be assessed under the head “Income from business” and not as “Income from property” on the ground that the letting amounted to exploitation of commercial assets and was incidental to the business of the assessee. The claim made by the assessee was negatived since there was no material placed by the assessee in order to show that the letting of the factories and godowns was an act of commercial expediency or that it was incidental to the business of the assessee. Therefore, the rental income from the factories and godowns received by the assessee was directed to be assessed under the head “Income from property”. This decision was rendered on the facts arising in that case. Inasmuch as the assessee failed to produce evidence to show that the letting out of the factories or godowns was for commercial expediency or it was incidental to the business of the assessee, the rental income could not be assessed as business income.

26. In Karanpura Development Co. Ltd. v. CIT, [1962] 44 ITR 362, the Supreme Court, while considering the provisions of sections 4 and 6 of the Indian Income-tax Act, 1922, held that where a company acquires properties, which it sells or leases out with a view to acquiring other properties to be dealt with in the same manner, the company is not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed or put back into the business to acquire more properties for further profitable exploitation. Therefore, the amounts received by way of salami were trading receipts and the profits therefrom were liable to income-tax. It was further held that where a company was formed with the specific object of acquiring properties not with a view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of the business, it cannot be said to treat them as land owner, but as trader. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction, but to the substance of the matter. Therefore, when the property acquired by a company is not a commercial asset, but a property, then the income derived from that property is assessable under the head “Rental income from property”.

27. According to the facts arising in CIT v. Ajmera Industries Pvt. Ltd., [1976] 103 ITR 245 (Cal), the assessee-company was formed with the main object of manufacturing pipes. It constructed factory sheds and installed therein high tension wires and a transformer. The manufacturing business could not be started for want of certain machinery for which it had obtained import licences. The assessee let out the factory sheds and claimed that the rental income was assessable as income from business. While considering this aspect, the Calcutta High Court held that it is well-settled that if an assessee derives any income by exploitation of its commercial assets, whether itself or through other agencies, such income should normally be considered to be the business income of the assessee.

28. The assessee also derived rental income from non-factory buildings including godowns. The facts showed that the assessee let out only the surplus portion after actual user of portions for its own business. The assessee claimed that the rental income derived from the non-factory buildings including godowns should be assessed under the head “Business income”. The Calcutta High Court held that the income derived from the surplus of the non-factory buildings including godowns, was the business income of the assessee.

29. In CIT v. B. Nagi Reddy, [1984] 147 ITR 337, this court while considering the nature of the income derived from the lease of cinematograph studios held that whether a particular letting is a business has to be decided in the circumstances of each case and each case must be decided in the setting and background of its own facts. There is no such thing as a naturally born commercial asset because an asset becomes a commercial asset in view of the use to which it is put in a business and not because of any inherent qualities. On the facts, it was found that the assessee had been utilising these two studios as lessee on earlier occasions and even after purchase, he had made a film of his own in one of them. Considering these facts it was held that the assessee was treating these studios as commercial assets. Therefore, the rental income should be assessed under the head “Business income”.

30. In the commentary at page 461 of Kanga and Palkhivala's the Law and Practice of Income-tax, Eighth edition, Volume 1, it is stated as under:

“While quoting the decision of the Supreme Court in the case of CEPT v. Lahshmi Silk Mills Ltd., [1951] 20 ITR 451, it is stated that “if the commercial asset is not capable of being used as such, then its being let out to others, does not result in an income, which is the income of the business, but we cannot accept the view that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else.”

31. According to learned standing counsel income derived from letting out an oil mill, a jute mill, a flour mill, a factory, a factory shed, a mine, godown, a cinema theatre or a studio, may constitute business income. But income derived from letting out the house property would not come under the head “Business income”. This is true. But in the present case the premises in question are built up on the Mount Road and out of the total extent of the property, two-thirds of the property was used for the business of the assessee at present, but, according to the assessee, the entire property was used for its business in the beginning, but later on when the branches were shifted to outside stations, the second floor has become a surplus and hence that was let out to the Government department. Inasmuch as the nature of the asset at No. 34, Mount Road, is commercial asset, the assessee can exploit the same either by itself or by letting out the same to others. Therefore, in a matter like this the fundamental position that has got to be ascertained is as to whether a particular building or premises is a commercial asset or a house property. If the premises are a commercial asset, then the income derived therefrom would amount to business income, as otherwise it would be income derived from the property assessable under the head “Property income”. On the facts, the Tribunal found in the present case that the property at No. 34, Mount Road, is a commercial asset, which was used by the assessee as such in the beginning and later on after shifting its branches to outside stations, the second floor has become surplus, which was exploited by the assessee by letting it out to others and therefore the rental income derived therefrom is rightly assessable under the head “Business income”. Accordingly, we answer question No. (1) referred to us in the affirmative and against the Department.

32. Questions Nos. (2) and (3) will go together. The point for consideration is whether the commission paid to V.T Padmanabhan and Bros., is an admissible deduction and whether the said V.T Padmanabhan and Bros., rendered any service to the company to warrant payment of commission of Rs. 34,100. This point relates to the assessment year 1975-76. The assessee paid a commission of Rs. 34,100 to V.T Padmanabhan and Bros., a sister concern. The reasons for the disallowance were that V.T Padmanabhan is a director of the assessee-company and is also interested in the firm. Some employees were working for both the concerns. The offices of both the assessee as well as the firm were situated in the same building. These facts were said to have been found by the inspector on local enquiry. According to the Income-tax Officer, there was no evidence of any work done by the firm to deserve the commission on sales notwithstanding the fact of an agreement, which was in existence from earlier years. The commission payments were allowed in the past. According to the Income-tax Officer, a similar payment by India Garage, another company in the same group of V.T Padmanabhan and Bros., was disallowed. For the same reasoning, the commission payment was disallowed in the case of the present assessee also. However, on appeal, the first appellate authority found that there was an agreement and that the payment was in accordance with the same. The first appellate authority allowed similar payment in the case of India Garage in another order, dated March 23, 1979. Therefore, the first appellate authority saw no ground to disallow the commission payment. Accordingly, the disallowance made by the Income-tax Officer was deleted. Aggrieved, the Revenue preferred a second appeal before the Tribunal. The Tribunal considering the facts that the payment was made under an agreement and since the agreement was not doubted by the Department, the Tribunal held that the first appellate authority was correct in deleting the disallowance made by the Assessing Officer.

33. Before us, learned standing counsel appearing for the Department submitted that apart from the reasons stated by the Assessing Officer in his order, it remains to be seen that the assessee has not produced any evidence to show that any service was rendered by V.T Padmanabhan and Bros., to the assessee-company. In spite of the fact that the agreement was produced, the assessee has not placed any material on record to show that any services were rendered for payment of commission. Therefore, in the absence of proper particulars, since the onus is on the assessee to prove that the commission payment was made for the services rendered by V.T Padmanabhan and Bros., the Tribunal was not correct in confirming the order passed by the first appellate authority in deleting the disallowance. In order to support this contention, learned standing counsel appearing for the Department, relied upon the decision of the Supreme Court in Lachminarayan Madan Lal v. Commissioner Of Income Tax, West Bengal , [1972] 86 ITR 439, wherein it was held that mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, alone is not sufficient for allowing the commission payment as deduction. On the other hand, learned counsel appearing for the assessee submitted that the assessee has produced the agreement to show the payment of commission for the services rendered by V.T Padmanabhan and Bros. The said firm was the canvasser for the business of the assessee-company. Therefore, commission payment was payable by the assessee-company to the said firm. In the earlier years, such commission payments were allowed. In the case of a sister concern India Garage also, such commission payment was allowed. Therefore, in the present assessment year under consideration, there is no ground for disallowing such commission payment by the Department.

34. For disallowance of commission payment, the Income-tax Officer has enumerated various grounds in his order. The Tribunal found that those grounds by themselves do not support the view taken by the Income-tax Officer to disallow the commission payment. The Tribunal has seen the agreement between the parties. The Tribunal has also found that it is not the case of the Department that the agreement is a fictitious one or not believable. Such commission payments were said to be allowed in the case of a sister concern India Garage. Learned counsel appearing for the assessee submitted before us that even in the past as well as in future, such commission payment was allowed by the Department. Only during the assessment year under consideration, according to learned counsel, the Department thought it fit to disallow commission payment. We have heard both learned standing counsel appearing for the Department as well as learned Counsel appearing for the assessee. According to learned standing counsel for the Department, the assessee has not placed any material to show that any service was rendered by the firm to the assessee, warranting commission payment. It remains to be seen that the agreement was not doubted by the Department. Such commission was allowed in the case of a sister concern India Garage. Learned counsel for the assessee submitted that such commission payments were allowed in the past as well as in future. But only in the assessment year under consideration the commission payment was disallowed by the Department. Considering all these factual position, we are of the view that inasmuch as this kind of commission payment was allowed in the past, the assessee would have mechanically produced some documents for claiming deduction. The first appellate authority and the Tribunal considering the position obtaining in the earlier orders and the orders passed in the earlier years, ultimately came to the conclusion that the commission payment made should be allowed as a deduction. Inasmuch as, on appraisal of facts when the Tribunal considered that such commission payment is allowable as deduction, on re-appraisal of facts, we do not want to come to a different conclusion. Even though, according to learned standing counsel appearing for the Department no further materials were produced to show that services were rendered by the firm, the Tribunal considering the facts arising in the case of the same, assessee in the earlier years as well as the order passed on this aspect in the case of the same assessee and the sister concern, in the earlier years, confirmed the order passed by the first appellate authority in deleting disallowance. In view of all these reasons, we see no infirmity in the order passed by the Tribunal in confirming the order passed by the first appellate authority in deleting disallowance of commission payment. Accordingly, we answer questions Nos. (2) and (3) also in the affirmative and against the Department. No costs.