JUDGMENT
K. Shivashankar Bhat, J.
1. The question referred for our consideration under the provisions of the Income-tax Act, 1961 (“the Act” for short), reads thus :
“Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that there was no accrual of liability for payment of commission for the assessment year 1977-78 ?”
2. The assessment year in question is 1977-78. The accounting year is the calendar year. In September, 1976, the shareholding of the assessee company was altered to some extent by transfer of certain shares to one H. K. Basavaraj and another set of shares was transferred to a group called the Singh group. However, the business of the company continued as hitherto.
3. During the previous years, the assessee-company was paying commission to a Bombay company at the rate of 5% of its turnover as commission charges. The order of the Income-tax Officer shows that this commission was paid for the services rendered by the Bombay company to the assessee in diverting tourists to the assessee’s hotels at Mysore and also helping the assessee in securing adequate supplies and equipment from time to time and thus assisting the assessee in the successful working of the assessee-company. Obviously, because of the change in the shareholding, there was a resolution dated September 29, 1977, wherein it was resolved that no turnover commission need be provided for in respect of the said year for the reasons disclosed in detail in the notes forming part of the accounts and annexed to the balance-sheet and profit and loss account. Subsequently, the Bombay company wrote to the assessee clarifying that commission was payable to the Bombay company for the year 1976 also since services were rendered. In view of this claim of the Bombay company, the assessee again resolved to make the payment and an appropriate resolution was passed on September 3, 1978. Thus the commission was paid to the Bombay company. There can be no doubt that, as a matter of fact, the above commission was paid to the Bombay company. The assessing authority, consequently, allowed this payment as a deduction.
4. However, the Commissioner, in exercise of his powers under section 263 of the Act, revised this order and held that earlier the board had taken a definite decision not to pay commission for the year 1976. This decision was revised only subsequently on September 3, 1978, and, therefore, the decision to pay the commission was taken on a subsequent date which is not relevant for the assessment year in question. It is a voluntary decision of the directors of the assessee-company to pay the commission. No written agreement between the parties was forthcoming where under the assessee had to pay commission to the Bombay company. Consequently, the claim of the assessee was disallowed and the assessment order was modified. This order was affirmed by the Appellate Tribunal. The Appellate Tribunal has repeated the same reasons as were given by the Commissioner. However, the Appellate Tribunal states that there was no doubt that, as a customary practice, the commission was being paid since 1974 onwards. When the Tribunal has given a finding that it was customary to pay the commission since the year 1974, the burden was on the Revenue to establish that the situation stood altered resulting in a situation that the assessee need not pay the commission thereafter from the year 1976 and onwards. The resolution passed in September, 1977, was held as indicative of the fact that the company had taken a decision not to pay commission at all to the Bombay company, since already there was a decision not to pay the commission for the year 1976, and the subsequent decision to pay the same will not be allowable as a deduction for want of any agreement. Thus, the implication of the Appellate Tribunal’s reasoning is that, in the absence of a specific agreement to make the payment of commission, any payment made cannot be allowed as a deduction.
5. We are not able to agree with the reasoning of the Appellate Tribunal. The Tribunal has specifically given a finding that commission was being paid since 1974 onwards. The genuineness of the payment and allowability of those payments as a deduction was never in doubt. That means there was clear understanding between the assessee and the Bombay company that the commission would be paid by the assessee company towards the services rendered, such as diverting the tourists to the assessee-company’s hotels and other services referred to by the Income-tax Officer in the order of assessment. The resolution of the board dated September 29, 1977, was a unilateral decision which was not binding on the Bombay company at all. When the Bombay company pointed out that the Commission was due to it, the assessee-company realised its mistake and, therefore, rectified this mistake by passing the subsequent resolution on September 3, 1978. The decision to make the payment is not by virtue of a new resolution dated September 3, 1978. The resolution of the said date is a reflection of the realisation of the mistake that was committed earlier. The order of the Income-tax Officer is very clear that the services were in fact rendered to the assessee-company by the Bombay company by diversion of tourists, etc. The burden in the instant case, having regard to the circumstances of the case, is quite heavy on the Revenue to establish that no services were rendered and the payment of commission was unauthorised or not warranted by any business considerations. We have, no doubt, in our mind that the commission in the instant case should have been paid and accordingly the board resolved to make the payment in September, 1978.
6. Mr. Chanderkumar, learned counsel for the Revenue, however, contended that the question is essentially one of fact and does not call for any consideration by this court. This contention cannot be accepted since the finding of the Appellate Tribunal as well as that of the Commissioner of Income-tax is based on an erroneous approach. The findings recorded by the Tribunal is the result of a misdirection and ignoring the basic idea involved in the payment of the commission. The burden was wrongly cast on the assessee in the instant case.
7. In the circumstances, we answer the question referred to us in the negative and against the Revenue. Reference is answered accordingly.