ITO Ward-11 (3), New Delhi V. FX Info Technologies Ltd, New Delhi

ITA 2996/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5785 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: O P SAPRA SANDEEP SA PRA
• Keywords: Business income; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA ITA NO.2742/D/08 ASSESSMENT YEAR : 2004-05 DY. C.I.T., VS. M/S FX INFO TECHNOLOGIES PVT. CIRCLE 11(1), LTD., D-13/4, OKHLA INDL. AREA NEW DELHI PHASE-II, NEW DELHI PAN NO. AAACF 4916F & ITA NO.2996/D/08 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER, VS. M/S FX INFO TECHNOLOGIES PVT. CIRCLE 11(3), LTD., D-13/4, OKHLA INDL. AREA NEW DELHI PHASE-II, NEW DELHI PAN NO. AAACF 4916H ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI MANISH GUPTA, DR RESPONDENT BY : S/SHRI O.P. SAPRA, SANDEEP SA PRA, ADVOCATES O R D E R PER R.C. SHARMA, AM: THESE ARE APPEALS FILED BY REVENUE AGAINST THE SEPA RATE ORDERS OF CIT(A) DATED 09.05.2008 FOR THE ASSESSMENT YEAR 200 4-05 AND DATED 27.07.2008 FOR THE ASSESSMENT YEAR 2005-06, IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961. ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 2 2. GRIEVANCE OF THE REVENUE IN BOTH THE YEARS RELAT E TO TREATMENT OF INCOME RECEIVED ON ACCOUNT OF COMMISSION AS BUSINES S RECEIPT AS AGAINST TREATMENT OF SUCH INCOME BY THE AO AS INCOME FROM O THER SOURCES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF D ISTRIBUTION OF ACER PRODUCTS SUCH AS COMPUTERS, LAPTOPS, DESKTOPS ETC. FOR ABOUT TWO YEARS. HOWEVER, DUE TO FINANCIAL CONSTRAINTS AND LACK OF F INANCE, IT COULD NOT MAKE ITS BUSINESS VENTURE A PROFITABLE ONE AND IN THE PR OCESS INCURRED HEAVY LOSSES. THE SALES ACHIEVED FOR YEAR ENDED MARCH, 2 001 WERE RS.941.62 LAKHS AND FOR THE NEXT 9 MONTHS PERIOD I.E. FROM APRIL, 2 001 TO DECEMBER, 2001 RS.361.06 LAKHS. IN VIEW OF HEAVY LOSSES, BOARD OF DIRECTORS OF THE ASSESSEE COMPANY DECIDED IN A MEETING HELD ON 29.12.2001 TO TRANSFER THE DISTRIBUTION ASSIGNMENT OF ACER PRODUCTS TO M/S SALORA INTERNATI ONAL LIMITED FOR WHICH M/S ACER INDIA PRIVATE LIMITED HAVE ALSO CONSENTED. FOR THE SERVICES SO RENDERED, THE ASSESSEE COMPANY WAS IN RECEIPT OF IN COME IN FORM OF COMMISSION. ASSESSEE OFFERED THE SAME AS BUSINESS INCOME. HOWEVER, THE AO DID NOT ACCEPT ASSESSEES CONTENTION AND TREATED THE COMMISSION INCOME SO RECEIVED AS INCOME FROM OTHER SOURCES. ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 3 4. IT WAS CONTENDED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER THAT IN TERMS OF AGREEMENT ENTERED BY IT THE ASSESSEE COMPA NY IS TO PROVIDE THE FOLLOWING SERVICES TO M/S SALORA INTERNATIONAL LIMI TED: I) TO PROVIDE DEALER NETWORK WITH THEIR CREDIT WORT HY REPORT AND STATUS. II) TO ASSIST IN MAKING PRODUCT MIX, AREAS WISE AND SEASON WISE. III) GUIDANCE ON INVENTORY LEVEL MAINTENANCE. IV) GUIDANCE IN LOGISTICS FOR MOVEMENT OF INVENTORY , TIMELY AND ECONOMICALLY. V) GUIDANCE ON MARKETING STRATEGY. VI) GUIDANCE ON INSTALLATION SERVICE AND AFTER SALE SERVICE WITH OPTIMUM COST EFFECTIVENESS. VII) TO PROVIDE MARKET SURVEY AND RESEARCH REPORT A ND GUIDANCE IN FURTHER MARKET RESEARCH. VIII) TO PROVIDE REPORT ON RESEARCH AND SURVEY WITH VARIOUS OTHER BRANDS GOODS WITH COMPARATIVE PRICE, FEATURES AND MARKET S HARES WITH ACER PRODUCTS. IX) GUIDANCE FOR SELECTION OF STAFF AND BUSINESS PL ACES. X) TO PROVIDE INFORMATION ABOUT AREAS IN WHICH GOOD TURNOVER EXPECTED. ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 4 5. IT WAS FURTHER SUBMITTED THAT AFTER TRANSFER OF DISTRIBUTIONSHIP OF ACER PRODUCTS, M/S SALORA INTERNATIONAL LIMITED HAS BEEN ABLE TO ACHIEVE THE FOLLOWING FIGURES FOR SALES: A) THREE MONTHS ENDED MARCH 2002 1.02 CRORES B) YEAR ENDED MARCH 2003 13.23 CRORES C) YEAR ENDED MARCH 2004 17.64 CRORES D) YEAR ENDED MARCH 2005 26.00 CRORES E) YEAR ENDED MARCH 2006 68.12 CRORES 6. BEFORE THE CIT(A), THE ASSESSEE HAS FILED FOLLOW ING THREE DOCUMENTS IN SUPPORT OF ITS CLAIM OF INCOME RECEIPT FROM SAL ORA INTERNATIONAL AS BUSINESS RECEIPT LIABLE TO TAX AS INCOME FROM BUSIN ESS AND PROFESSION; 1) COPY OF LETTER DATED 27.12.2001 BY ACER INDIA PV T. LTD. TO M/S SALORA INTERNATIONAL INDIA LIMITED. 2) COPY OF LETTER DATED 27.12.2001 ADDRESSED TO THE ASSESSEE COMPANY BY M/S ACER INDIA PVT. LTD. 3) COPY OF RESOLUTION OF BOARD OF DIRECTORS OF THE ASSESSEE COMPANY PASSED ON 29.12.2001 FOR HIS COMMENTS UNDER RULE 46 A OF I.T. RULES, 1962. 7. BY THE IMPUGNED ORDER, THE CIT(A) OBSERVED THAT ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF DISTRIBUTOR OF ACER INDIA LTD. THE DISTRIBUTION SHIP OF THE ACER PRODUCTS WAS BEING HE LD BY THE ASSESSEE COMPANY UPTO 31.12.2001. THE ASSESSEE COULD CARRY OUT THE SAID BUSINESS OF DISTRIBUTORSHIP WITH ACER INDIA LTD. FOR ABOUT TWO YEARS. DUE TO FINANCIAL ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 5 CONSTRAINTS AND LACK OF FINANCE, IT COULD NOT MAKE THE VENTURE A PROFITABLE ONE AND IN THE PROCESS SUFFERED HEAVY LOSSES. THE ASSESSEE COMPANY COULD ACHIEVE SALES OF RS.941.62 LACS FOR YEAR ENDED MARC H, 2001 AND RS.361.06 LACS FOR THE NEXT NINE MONTHS ENDING ON DECEMBER 31 , 2001. FOR CARRYING ON BUSINESS SMOOTHLY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY HELD MEETING ON 29.12.2001 AND RESOLVED TO TRANSFER THE DISTRIBUTION ASSIGNMENT TO M/S SALORA INTERNATIONAL LTD. FOR WHICH ACER IND IA PVT. LTD. HAVE ALSO CONSENTED. THE SAID DISTRIBUTION SHIP OF THE ACER PRODUCTS WAS TRANSFERRED TO M/S SALORA INTERNATIONAL LTD. W.E.F. 01.01.2002 WITH THE CONSENT OF ACER INDIA PVT. LTD. THE CIT(A) OBSERVED THAT THE ASSES SEE COMPANY MADE AVAILABLE SERVICES LIKE PROVIDING DEALER NETWORK WI TH THEIR CREDIT WORTHY REPORT AND STATUS, TO ASSIST IN MAKING PRODUCT MIX, AREA WISE AND SEASON WISE GUIDANCE ON INVENTORY LEVEL MAINTENANCE AND IN LOGI STICS FOR MOVEMENT OF INVENTORY, TIMELY AND ECONOMICALLY GUIDANCE ON MARK ETING STRATEGY, GUIDANCE ON INSTALLATION SERVICE AND AFTER SALE SER VICE WITH OPTIMUM COST EFFECTIVENESS, TO PROVIDE MARKET SURVEY AND RESEARC H REPORT AND GUIDANCE IN FURTHER MARKET RESEARCH, TO PROVIDE REPORT ON RESEA RCH AND SURVEY WITH VARIOUS OTHER BRANDS GOODS WITH COMPARATIVE PRICE, FEATURES AND MARKET SHARES WITH ACER PRODUCTS, ETC. THE CIT(A) CALLED FOR AOS COMMENTS ON THE LETTER DATED 27.12.2001. AFTER CONSIDERING THE REMAND REPORT SENT BY ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 6 AO, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY COGENT MATERIAL ON RECORD TO DOUBT THE GENUINENESS OF LETTER DATED 27.12.2001 RECEIVED FROM ACER INDIA PVT. LTD. AS PE R WHICH M/S ACER INDIA PVT. LTD. HAS AGREED TO TRANSFER DISTRIBUTION ARRANGEMENT TO M/S SALORA INTERNATIONAL LTD. AND OTHER DOCUMENTS LIKE LETTER WRITTEN BY M/S ACER INDIA PVT. LTD. TO M/S SALORA INTERNATIONAL LTD. AN D THE DISTRIBUTION AGREEMENT DATED 01.01.2002 ENTERED INTO BY THE ASSE SSEE WITH M/S SALORA INTERNATIONAL LTD. AGGRIEVED BY THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 8. LEARNED DR RELIED ON THE ORDER OF THE AO AND SUB MITTED THAT COMMISSION INCOME RECEIVED IN THE COURSE OF BUSINES S HAS BEEN CORRECTLY TREATED BY THE AO AS INCOME FROM OTHER SOURCES, THE REFORE THE CARRY FORWARD BUSINESS LOSS COULD NOT BE SET OFF AGAINST SUCH INC OME. 9. ON THE OTHER HAND, LEARNED AR SUBMITTED THAT ASS ESSEE WAS ALREADY IN THE BUSINESS OF DISTRIBUTION OF ACER PRODUCTS LIKE COMPUTERS, LAPTOPS AND DESKTOPS ETC. AND IN CONTINUATION OF THE SAME SERVI CES LATER ON IT WAS IN RECEIPT OF INCOME IN THE FORM OF COMMISSION ON ASSI GNMENT OF SUCH AGENCY BY ACER INDIA (P) LTD. TO M/S SALORA INTERNATIONAL LTD. AS PER LEARNED AR, DUE JUSTIFICATION HAS BEEN GIVEN FOR ASSIGNMENT OF DEALERSHIP TO M/S SALORA INTERNATIONAL LTD. THE NATURE OF SERVICES RENDERED EVEN AFTER ASSIGNMENT OF ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 7 AGENCY REMAINED THE SAME, THEREFORE AS PER LEARNED AR, THE INCOME EARNED IN THE COURSE OF BUSINESS EVEN THOUGH IN THE NAME O F COMMISSION WAS CORRECTLY ASSESSED BY THE CIT(A) AS BUSINESS INCOME AGAINST WHICH CARRY FORWARD BUSINESS LOSS CAN BE SET OFF. HE ALSO PLAC ED ON RECORD THE ORDER OF ITAT IN THE CASE OF M/S SALORA INTERNATIONAL LTD., ORDER DATED 31.7.2009 WHEREIN PAYMENT OF COMMISSION BY M/S SALORA INTERNA TIONAL LTD. TO THE ASSESSEE COMPANY WAS TREATED BY THE TRIBUNAL AS BUS INESS EXPENDITURE INCURRED FOR UTILIZATION OF ESTABLISHMENT AND INFRA STRUCTURE OF ASSESSEE M/S FX INFO TECHNOLOGIES LTD. AS PER LEARNED AR, THE S AME INCOME RECEIVED BY THE ASSESSEE IS THEREFORE LIABLE TO BE TAXED AS BUS INESS INCOME ONLY IN TERMS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SALORA INTERNATIONAL LTD. OUR ATTENTION WAS ALSO INVITED TO OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION AND THE TERMS OF THE CONDITIONS OF THE DISTRIBUTION AGREEMENT AND THE NATURE OF SERVICES BEING RENDERED BY THE ASSESS EE IN THE NORMAL COURSE OF ITS BUSINESS WHICH GENERATED INCOME IN THE HANDS OF THE ASSESSEE IN THE FORM OF COMMISSION LIABLE TO BE TAXED AS BUSINESS INCOME . 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUN D THAT IN VIEW OF THE ASSESSEE BEING INCURRING BUSINESS LOSSES ON ACCOUNT OF BUSINESS OF DISTRIBUTION OF ACER PRODUCTS, THE BOARD OF DIRECTO RS OF THE COMPANY HELD ITS ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 8 MEETING ON 29.12.2001 AND RESOLVED TO TRANSFER THE DISTRIBUTION AGREEMENT OF ACER PRODUCTS TO M/S SALORA INTERNATIONAL LTD. WE ALSO FOUND THAT ACER INDIA (P) LTD. HAVE ALSO CONSENTED TO TRANSFER THE DISTRIBUTION BUSINESS TO M/S SALORA INTERNATIONAL LTD. A COPY OF THE LETTER FIL ED BEFORE THE CIT(A) WAS ALSO SENT TO THE AO FOR HIS COMMENTS AND AFTER CONS IDERING THE REMAND REPORT, THE CIT(A) REACHED TO THE CONCLUSION THAT I NCOME IN THE FORM OF COMMISSION WAS RECEIVED BY THE ASSESSEE FOR RENDERI NG THE SERVICES LIKE PROVIDING DEALER NETWORK FOR THEIR CREDITWORTHY REP ORT AND STATUS, TO ASSIST FOR MAKING PRODUCT MIX, AREA WISE AND SEASON WISE, TO GUIDE ON INVENTORY LEVEL MAINTENANCE, TO GUIDE IN LOGISTICS FOR MOVEME NT OF INVENTORY, TIMELY AND ECONOMICALLY. THE SERVICES SO RENDERED ALSO IN CLUDED PROPER GUIDANCE ON MARKETING STRATEGY, GUIDANCE ON INSTALLATION SER VICE, AFTER SALES SERVICE WITH OPTIMUM COST EFFECTIVENESS AND TO PROVIDE MARK ET SURVEY AND RESEARCH REPORT AND GUIDANCE IN FURTHER MARKET RESEARCH. TH E SERVICES SO RENDERED BY THE ASSESSEE ALSO INCLUDED PROVIDING OF REPORT OF R ESEARCH AND SURVEY WITH VARIOUS OTHER BRANDED GOODS WITH COMPARATIVE PRICE, FEATURES AND MARKET SHARES WITH ACER PRODUCTS, GUIDANCE FOR SELECTION O F STAFF AND BUSINESS PLACES AND TO PROVIDE INFORMATION ABOUT AREAS IN WH ICH GOOD TURNOVER IS EXPECTED. ALL THESE SERVICES WERE RENDERED BY ASSE SSEE WHILE CARRYING ON BUSINESS IN AN ORGANIZED WAY AND IN THE COURSE OF R EGULAR BUSINESS. THE ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 9 SAME INFRASTRUCTURE AND ESTABLISHMENT WAS UTILIZED BY ASSESSEE WHICH WERE HITHERTO UTILIZED WHILE IT WAS CARRYING ON BUSINESS OF DISTRIBUTION OF ACER PRODUCTS ITSELF. WITH REGARD TO FINDINGS RECORDED BY THE CIT(A) FOR THE NATURE OF SERVICES RENDERED AND THE TREATMENT OF IN COME RECEIVED THEREON, WHICH HAVE NOT BEEN CONTROVERTED BY THE LEARNED DR, WE DO NOT FIND ANY REASON TO INTERFERE IN SUCH FINDING RECORDED BY CIT (A) AND THEREBY TREATING THE INCOME RECEIVED FOR RENDERING SUCH SERVICES AS BUSINESS INCOME EVEN THOUGH IT WAS GIVEN IN THE NAME OF COMMISSION. 11. WE ALSO FOUND THAT AFTER TRANSFER OF AGENCY TO M/S SALORA INTERNATIONAL LTD., THERE WAS SUBSTANTIAL INCREASE IN THE SALES T URNOVER YEAR AFTER YEAR WHICH IS CLEARLY DEPICTED IN THE PAPER BOOK FILED B EFORE THE LOWER AUTHORITIES. THUS, THE VENTURE OF DISTRIBUTION OF ACER PRODUCTS IN WHICH THE ASSESSEE WAS INCURRING LOSS, AFTER ASSIGNMENT OF SUCH AGENCY TO M/S SALORA INTERNATIONAL LTD. NOT ONLY ASSESSEE EARNED SUBSTANTIAL INCOME BU T M/S SALORA INTERNATIONAL LTD. WAS ALSO ABLE TO HAVE REMARKABLE ACHIEVEMENT IN THE SALES TURNOVER, THEREBY EARNING SUBSTANTIAL PROFIT THEREO N. WE HAVE CAREFULLY GONE THROUGH THE TERMS AND CONDITIONS OF THE DISTRIBUTIO N AGREEMENT PLACED ON RECORD AS WELL AS LETTER DATED 27.12.2001, WHEREIN M/S ACER INDIA PVT.LTD. AGREED FOR TRANSFER OF DISTRIBUTION ARRANGEMENT TO M/S SALORA INTERNATIONAL LTD. WE HAVE ALSO GONE THROUGH THE VARIOUS CLAUSES OF THE MEMORANDUM OF ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 10 ASSOCIATION AS ALLEGED BY THE AO FOR IMPUTING THAT ASSIGNMENT OF DISTRIBUTORSHIP WAS NOT COMING IN THE OBJECT CLAUSE OF THE ASSESSEE COMPANY. AFTER GOING THROUGH ALL THESE MATERIAL, WE FOUND TH AT AS PER THE TERMS OF AGREEMENT, THE ASSESSEE HAD AGREED TO TRANSFER ITS DEALER NETWORK TO M/S SALORA INTERNATIONAL LTD. WITH LIST OF ITS CLIENTS, CUSTOMERS, THE BENEFIT OF ALL CONTRACTS, ENGAGEMENTS AND ORDERS IN CONNECTION WIT H THE BUSINESS OF ACER PRODUCTS AND ITS SKILLED EMPLOYEES HAVING VAST EXPE RIENCE AND KNOWLEDGE OF RENDERING SERVICES IN THIS LINE OF BUSINESS. WE AL SO FOUND THAT ASSESSEE COMPANY HAD NOT AGREED BUT ALSO PROVIDED CONTINUED SUPPORT ON VARIOUS ASPECTS OF ARRANGEMENT AS AND WHEN REQUIRED BY M/S SALORA INTERNATIONAL LTD. WITH REGARD TO VARIOUS SERVICES DISCUSSED HERE INABOVE. THE ASSIGNMENT OF DISTRIBUTION ARRANGEMENT IS WELL JUSTIFIED IN VI EW OF ASSESSEE BEING CONTINUOUSLY INCURRING LOSSES AND THIS DECISION OF THE COMPANY RESULTED INTO PROVIDING GOOD PROFITS TO THE ASSESSEE. THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY HAS CONSIDERED ALL THESE ASPECTS I N THE MEETING AS THE TRANSFER WAS IN THE INTEREST OF THE ASSESSEE AS IT WAS INCURRING LOSSES IN THE YEAR IN WHICH THIS DISTRIBUTION BUSINESS HAD BEEN C ARRIED OUT BY THE ASSESSEE. THE MOTIVE IMPUTED BY THE AO IN RESPECT OF BUSINESS TRANSACTIONS IS DEVOID OF ANY MERIT. IN THE CASE OF SALORA INTERNATIONAL LTD., PAYMENT OF THIS COMMISSION WAS DISALLOWED BY THE AO. IN AN APPEAL FILED BY SALORA ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 11 INTERNATIONAL LTD., THE COMMISSION PAYMENT WAS ALLO WED BY CIT(A) AS BUSINESS EXPENDITURE. IN A FURTHER APPEAL FILED BY REVENUE, THE TRIBUNAL UPHELD THE ORDER OF CIT(A) BY OBSERVING THAT SALORA INTERNATIONAL LTD. HAS UTILIZED THE ESTABLISHMENT AND INFRASTRUCTURE OF M/ S FX INFO TECHNOLOGIES LTD. (WHO IS ASSESSEE BEFORE US) FOR CARRYING OUT S ALE OF ACER COMPUTERS. THE EXPENSES INCURRED BY SALORA INTERNATIONAL IN TH E SHAPE OF COMMISSION PAID FOR THE SERVICES RENDERED BY FX INFO TECHNOLOG IES LTD., IS DIRECTLY ASSOCIATED WITH ITS BUSINESS, VIDE ITS ORDER DATED 31.7.2009 IN ITA NO.2279/DEL/2008. THUS, THE ISSUE IN THE INSTANT C ASE IS ALSO COVERED BY THE RATIO LAID DOWN BY CO-ORDINATE BENCH IN CASE OF SAL ORA INTERNATIONAL LTD. THE BUSINESS EXPENDITURE IN THE HANDS OF SALORA INT ERNATIONAL LTD. BY NATURAL COROLLARY IS BUSINESS INCOME IN THE HANDS OF FX INF O TECHNOLOGIES, WHO IS ASSESSEE IN THE INSTANT CASE. THE AO IN ITS ORDER HAS ALSO STATED THAT AS PER THE MEMORANDUM OF ASSOCIATION OF THE COMPANY, THE M AIN OBJECT DID NOT INCLUDE ANY OBJECT WHICH PERMITS THE ASSESSEE TO CA RRY ON THE BUSINESS OF EARNING THE COMMISSION AND THEREFORE SUCH COMMISSIO N INCOME CANNOT BE TREATED AS INCOME FROM BUSINESS. IN CONTRAST TO TH IS OBSERVATION OF THE AO, WE FOUND THAT AS PER CLAUSE (8) OF THE OBJECTS AS C ONTAINED IN THE MEMORANDUM OF ASSOCIATION WHICH READS AS UNDER:- ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 12 TO ENTER INTO ANY ARRANGEMENTS WITH ANY GOVERNMENT OR AUTHORITIES WHETHER MUNICIPAL, LOCAL OR OTHERWISE O R ANY PERSON, FIRM OR COMPANY, IN INDIA OR ABROAD, THAT MAY SEEM CONDUCIVE TO THE ATTAINMENT OF THE COMPANYS OBJECTS OR ANY O F THEM, AND OBTAIN FROM ANY SUCH GOVERNMENT, AUTHORITY, PERSON, FIRM OR COMPANY ANY RIGHTS, PRIVILEGES LICENCES AND CONCESS IONS WHICH THE COMPANY MAY CONSIDER NECESSARY OR DESIRABLE TO OBTAIN AND TO CARRY OUT, EXERCISE, USE OR COMPLY WITH ANY SUCH ARRANGEMENTS, RIGHTS PRIVILEGES OR CONCESSIONS. 12. IT IS CRYSTAL CLEAR FROM THE ABOVE CLAUSE OF TH E MEMORANDUM THAT THE ASSESSEE COMPANY HAD THE POWER TO ENTER INTO THE AR RANGEMENT WITH ANY COMPANY WHICH MAY SEEM CONDUCIVE TO THE ATTAINMENT OF THE COMPANYS OBJECTS AS ALSO TO OBTAIN FROM SUCH COMPANY ANY RIG HTS, PRIVILEGES OR CONCESSIONS WHICH THE COMPANY MAY CONSIDER NECESSAR Y. THUS, WE DO NOT FIND ANY MERIT IN THE OBSERVATION OF THE AO IN THIS REGARD. THE AO HAS ALSO ALLEGED THAT COMMISSION EARNED BY THE ASSESSEE COMP ANY WAS JUST DIVERSION OF THE INCOME ON THE SAME PRODUCTS ON WHICH THE ASS ESSEE COMPANY WAS INCURRING LOSSES AND IS AN EYE WASH TO DEFRAUD THE REVENUE AS M/S SALORA INTERNATIONAL LTD. WAS HOLDING SUBSTANTIAL SHARES O F THE ASSESSEE. IN THIS REGARD, WE FOUND THAT IT WAS A PRUDENT BUSINESS DEC ISION TAKEN BY THE ASSESSEE COMPANY KEEPING IN VIEW ITS PAST LOSSES AN D WHICH HAS RESULTED INTO EARNING OF THIS INCOME AND TURN ITS LOSSES INTO PRO FITS. EVEN THE SALORA INTERNATIONAL ALSO EARNED GOOD PROFIT BY ACHIEVING HIGHER AND HIGHER SALES TURNOVER IN SUBSEQUENT YEARS. THE AO HAS NOT APPRE CIATED ENTIRE FACTS OF THE ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 13 CASE WHICH WERE DULY SUPPORTED BY DOCUMENTARY EVIDE NCE FILED BEFORE HIM. THE CIT(A) HAS ALSO GIVEN AN OPPORTUNITY TO THE AO AND CALLED FOR A REMAND REPORT ON ALL THESE OBSERVATIONS AND AFTER CONSIDER ING THE SAME, THE CIT(A) REACHED TO THE CONCLUSION THAT THERE WAS NO SUCH DI VERSION AND IT WAS A PRUDENT BUSINESS DECISION BY WHICH NOT ONLY ASSESSE E COMPANY HAS BEEN BENEFITED BY HIGHER SALES TURNOVER, BUT M/S SALORA INTERNATIONAL TO WHOM DISTRIBUTION BUSINESS WAS ASSIGNED, EARNED GOOD PRO FITS. WE ALSO FOUND THAT M/S SALORA INTERNATIONAL LTD. HAD ALSO ACHIEVED GOO D PROFIT MARGIN BY INCREASING THE SALES OF ACER PRODUCTS MANIFOLD, WHI CH COULD NOT BE ACHIEVED BY THE ASSESSEE COMPANY DURING THE PERIOD THE AGENC Y WAS HELD BY THE ASSESSEE. THE DETAILED FINDING RECORDED BY THE CIT (A) IS AS PER MATERIAL ON RECORD AND DOES NOT WARRANT ANY INTERFERENCE. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-03-2010. SD/- SD/- ( RAJPAL YADAV ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.03.2010 NS : ITA NOS.2742-2996-08- FX INFO TECHNOLOGIES 14 COPY FORWARDED TO : - 1. DCIT, CIRCLE11(1) & 11(3), NEW DELHI 2. M/S FX INFO TECHNOLOGIES PVT. LTD., D-13/4, OKHL A INDL. AREA, PHASE-II, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY DY. REGISTRAR,