J. K. WOOLLEN MANUFACTURERS versus COMMISSIONER OF INCOME-TAX, U.P.

Citation: [1969] 1 S.C.R. 525 · Decided: 02-08-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
J. K. WOOLLEN MANUFACTURERS 
v. 
COMMISSIONER OF INCOME-TAX, U.P. 
August 2, 1968 
B 
[J. C. SHAH, V. R.AMASWAMI AND A. N. GROVER, JJ.J 
c 
D 
E 
F 
G 
H 
Income-tax Act (11 of 1922), s. 10(2)(xv)-Commission to employee 
higher when profits exceed a lakh-Whether deductable from employer's 
assessable incorne. 
The assessee-a Mill, appointed V, as its General Manager, on a salary 
of Rs. 1000/- p.m., and car allowance df Rs. 250/- p.m., plus commission 
of 12±% on the net profifu of the furn and in case the profits exceeded 
Rs. 1 lakh, the commission payable was 25 % . In the first year of the 
appointment the mill suffered loss, next year commission was paid at 12t% 
of the profits, and the next year commission paid was 25 % as the profits 
exceeded the figure stipulated. After the death of V, one of the Directors 
was appointed to manage its affairs and given a total remuneration of 
Rs. 24,000/ - per annum and the post df General Manager was abolished. 
The assessee claimed deduction from its assessable income the amount 
paid to V at the rate of 25 % of the profits. 
The Income-tax Officer 
disallowed the claim and determined Rs. 5,0001- as reasonable amonnt 
payable. 
Against the amonnt disallowed, the assessee appealed to the 
Appellate Assistant Comm;ssioner, who allowed 
payment of commission 
at 12!% as in its view that rate was reasonable considering the practice 
in similar 'business concerns. The assessee a,ppealed to the Appellate Tri-
bunal and the appeal was dismissed. The Tribnnal took the view that the 
General Manager carried responsibility equal to that of the Director, so 
the commission paid to V, in excess of Rs. 24,000/- per annum, i.e., the 
aIIX)unt paid as total remuneration to the Director, was not really paid 
wholly for the purpose of carrying on business. 
On reference, the High 
Court answered the question against the a.ssessee. 
The assessee in appeal 
to this Court contended that the higher rate of commission on profits was 
inserted to create the interest of V, who had special aptitude and experi-
ence in the line and the mill was running at a loss and it was only after 
sometime of V's taking over that the mill made large profits, so the amount 
paid to V, was an amount laid out or expended wholly or exclusively for 
the purpose of the business of the assessee, and it was wrongly disallowed. 
HELD : In the circumstances established by the assessee, the entire 
amonnt paid to V, was an amount laid out or expended wholly and ex-
clusively for the purpose df the assessee. 
In applying the test of commercial expediency for determining whether 
an expenditure was wholly and exclusively laid out for the purpose of the 
business, reasonableness of the expenditure has to be adjudged from the 
point of view of the businessman and not df the Income-tax Department. 
It is, of course, open to the Appellate Tribunal to come to a conclusion 
either that the alleged payment is not real or that it is not incurred by the 
assessee in the character of a trader or it is not laid out wholly and ex-
clusively for the purpose of the business of the assessee and to disallow 
it. But it is not the function of the Tribunal to determine the remuneration 
which in their view should be paid to an employee df the assessee. 
An 
employer in fixing the remuneration of his employees is entitled to con~ 
sider the extent of his business, the nature of the duties to be performed' 
and the special aptitude of the employee, future prospects of extension by 
526 
SUPREME COt:RT REPORTS 
f 1969) I S.C.R. 
the bu~incs.-. and " host of other rc1'1tcJ circun1st:incL~. The question as 
A 
to whether an amoun1 claimed as expenditure was laid out or expended 
wholly or exclusively for the purpose of busint.>Ss, profession or vocatjoo 
<tS required under s. 10(2) (xv) of lhL Income-tax Act ha~ to he decided 
on the facts and in the li)'?:nt of the circumstances of each particular case. 
But the final conclusion on the 
;idmissihilily 
of an allov1ancc is one of 
law. 1529 D; 52911-530 CJ 
C.l.T. /Jv111/)(n· v. Walcluu1cl & Co. Privl1t£' I.rd. 65 
I.pr.R. 
_;s1, 
B 
applied to. 
· 
Swndcshi Co11011 Mills Co. I.rd. v. C.1.1'., 
U.F'. 
63 
!. T. R. 
57, 
rc.:fcrrccl to. 
CivIL APPEi.LAH JuRJsDICTION: Civil Appeal No. 591 of 
1967. 
Appeal by special leave from the judgment ~nd order, dated 
C 
May 22, 1962 of the Allahabad High (ourt in Income-tax Refer-
ence No. 424 of 1958. 
M. C. Chag/a and B. P. Malrcs/11rnri, for the appe

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