COMMISSIONER OF INCOME-TAX WEST BENGAL-II, CALCUTTA versus M/S BIRLA GWALIOR (PVT.) LTD.

Citation: [1973] 3 S.C.R. 902 · Decided: 04-04-1973 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

" 
·902 
COMMISSIONER OF INCOME-TAX WEST BENGAL-II, 
CALCUITA 
v . 
M/S. BIRLA GWALIOR (PVT.) LTD. 
April 4, 1973 . 
. 
[K. S. HEGDE .AND H. R. KHANNA, JJ.J 
Indian Income Tax Act 1922--S. 10(2) (xv)-Whether an 
amount 
·.foregone b;y the assessee as Managing Agency _Conunission and an an1ount 
foregone cs office allowance lVas allowable as Revenue Expendlture. 
These are all connected appeals. The a55cssee-rcspondent was the 
. .managipg agent of two companies N. & G. As Managing Agent of N 
Campany, it was entitled to receive a commission of 12~% on the net 
profits of the Managed Company together with a sum of Rs. 18,000/ • 
. as office allowance. 
In the case of G company, the assessee was entitled 
to get an allowan<'Je of Rs. 30,000/- in "'ddition to its agreed commis-
sion. In all these appeals,. certain questions were submitted 
by . the 
Tribunal to the High Court. In Civil' Appeal No. 242 of 1970 only 
one question was submitted and in the other two cases, i .. e., Civil Appeal 
'No. 243 and 244 of 1970, two questions we.r·o submitted. 
In the first appeal, the question submitted was whether 
on 
the 
facts and circumstances of the case, a certain sum said to have beien 
foregqn·e . by the assessce as managing agency commission was allowable 
:.as revenue expenditure. Similar questions were called 
for, 
for 
the 
remaining two assessment years as well and in 
addition, 
one 
;more 
question \V'aS submitted as to whether certain .sum, said to have beien 
'foregone by the assessce as. office allowanc'e was allowable as revenue 
iexpcnditure under th(( J~ome Tax Act. The assessment 
years 
\\'ere 
!954-55, !955-56 and !956-57. 
The. High Court came to the conclusion that it is not necessary to 
answer the common question referred to in all these appeals because 
it was academic; but the question relating to the office allowance ~vas 
·answered in favour of the assessec. 
· 
In the relevant ac1cou.inting years, the asscssee gave up the managing 
agency commission from both tlw managed companies. 
It al~o gave up 
the office allowance due from G. Company. The "ccounting years of 
both the asscssee company as \Vcll as the managed companies \Vere the 
financial year. The commissiori. was given up by the asscssee company 
after the ~.nd of the fin-ancial year, but before the ac~ounts of the 
managed c,ompany were made up. The accounts of the managed com-
panies. were made up some time during the end of September of the 
year following the respective accounting years. 
But in the 
case 
of 
office allowance, the same was given up even before the end of the finii.n-
" cial years. 
, 
· 
!Jn the bash. o~ these facts, the I. T. 0. ~s well as 
the 
Appellate 
Ass1sta:nt 1 Coo:nm1ss1oner held that the dcduc~1ons claimed 
were 
not 
allowable. As regards the commission, .they came to the conclusion that 
·the same having accrued at the end of each of the financial years, the 
agency giving up the same subsequent to these dates,- docs not bring 
the case under s. 10(1) of the Income-tax Act. So for as tho 
offico 
allowanc~ was concerned, they caffie to the conclusion that there was 
110 justification for giving up the sanw. The 
Income Tax 
Appellate 
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C.I.T. v. BIRLA GWALIOR PVT. LTD.' (llegde, J.) 
903 
Tribunal differed from this vie~ and held that to the 'extent the commis-
sion was give)tl up, the asscssee company had no Income 
at al!· 
In 
other words, the commission that was, given up caIUiot be cons1ckred 
as the real income of the assessee company. Therefore, it i3 an all'Ow
4 
able expenditure under s. 10(2)(xv). As regards the office allowance 
the Tribunal held that the same 
was 
allowable 
deduction 
under 
s/ 10(2) ()<.!'). 
The 
Tri,bunal 
further 
held 
that 
the 
comm1ss10n 
as well as th!'! cffic.e allowance were given tip by the asscssee on the 
ground of ·commercial expediency. The High Court agreed with this 
view takqo by the Tribunal. 
Dismissing the appeal, 
HELD : (i) As regards office allowance, following C.I.T. 
Bombay 
North v. Chandulal Keshavlal & Co., 38 I.T.R. 601 
the 
Tribunal 
was fully justified in· coming to the conclusion that 
the 
expenditure 
incurred came within the scope of s. 10(2) (xv). The only contention 
advanced by the appellant was that the allowance was paid to meet 
certain expenses i!O'Curred by the asscS:Seei company. 
Therefore, 
the 
. assessec could not have given up th

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