LexTHE COMMISSIONER OF INCOME-TAX, BOMBAY versus CHANDULAL KESHAVLAL & CO., PETLAD
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Febt-ua,..v. t'J 38 SUPREME COURT REPORTS [1960] THE COMMISSIONER OF INCOME-TAX, BOMBAY v. CHANDULAL KESHA VLAL & CO., PETLAD (S. K. DAs, J. L. KAPUR and M. HrnAYATULLAH, JJ.) Income-tax-Managing Agent relinquishing part of commission due from managed company-Whether amount relinquished is deduc- tible as expenditure expended wholly and exclusively for purpose of his business-Finding, if one of fact-Indian Income-tax Act, I922 (XI of I922), s. ro(2) (xv). The assessee was the Managing Agent of a company and for the accounting year 1950 its total commission was Rs. 3,09,n4. At the oral request· of the Directors of the Company made during the accounting year.the assessee agreed to accept Rs. l,00,000 only as its commission and relinquished the balance. The Income-tax Officer and the Appellate Assistant Commissioner held that the sum of Rs. 3,09,n4 had accrued to the respondent as commission and that the whole amount was taxable. On appeal the Appellate Tribunal held that out of the accrued com- mission the amount relinquished, i.e. Rs. 2,09,114, was allowable expenditure under s. 10(2) (xv) of the Income-tax Act. The Tribunal found that: (i) the financial condition of the managed company was unsatisfactory, (ii) in the past also the assessee had been remitting part or whole of its commission when the profits of the managed company were unsatisfactory, (iii) in the year of account the profits of the Compagy would have been Rs. 3,63,078 if the whole commission was deducted, which would be the lowest since 1940, (iv) it was not a bounty by the res- pondent to the managed company, (v) the business of the respondent was so linked up with the managed company that if the latter was put on a sounder position the assessee would .also get a larger commission in future, and (vi) the respondent had accepted Rs. l,00,000 at the instance of the managed company. The appellant contended that s. 10(2)(xv) applied only when the expenditnre was incurred directly for the purpose of the busi- ness of the assessee and not when it affected his business only indirectly as a result of the benefit to the managed company. Held, that the finding of the Tribunal that the amount which was claimed as a deductible allowance under s. lo(z)(xv) was laid out wholly and exclusively for the purpose of the assessee's business \Vas one of fact and as there \Vas evidence to support it, it could not be interfered with. In deciding whether the pay- ment was a deductible expenditure the question of commercial expediency and the principles of ordinary commercial trading had to be taken into consideration. If the payment of expendi- ture was incurred for the purpose of the trade or business of the assessee it did not matter that the payment enured to the benefit of a third party also. Another test was whether the transaction was properly entered into as a part of the assessee's legitimate - -41: . - 3 S.C.R. SUPREME COURT REPORTS 39 commercial undertaking in order to facilitate the carrying on of its business. But if the expense was incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense was not deductible. Tata Sons Ltd. v. The Commissioner of Income-tax, Bombay, (1950) I.T.R. 460, Union Cold Storage Company Ltd. v. Jones, 8 T.C. 725 and Odhams Press Ltd. v. Cook, 23 T.C. 233, referred to. Usher's Wiltshire Brewery Ltd. v. Bruce, 6 T.C. 399, Eastern Investments Ltd. v. The Commissioner of Income-tq;x, West Bengal. [1951] S.C.R. 594 and Atherton v. British Insulated & Helsby Cables Ltd, 10 T.C. 156, relied on CIVIL APPELLATE JURISDICTION: Civil Appeal No. 167 of 1958. Appeal hy,,,special leave from the judgment and order dated the February 15, 1955 of the Bombay High Court in Income-tax Reference No. 29 of 1953. 0. K. Daphtary, Solicitor General of India, R. Gana- pathi Iyer and D. Gupta, for the appellant. N. A. Palkhivala and I. N. Shroff, for respondent. 1960. February 17 The Judgment of the Court was delivered hy KAPUR J.-This is an appeal hy special leave against the judgment and order of the High Court of Bombay. It arises out of a reference hy·the Income- tax Appellate Tribunal under s. 66(1) of the India.:µ Income-tax Act (hereinafter termed the Act.) The appellant in this appeal is the Commissioner of Income-tax and the
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