TMI Blog1968 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... aish. According to the terms of appointment Shri J. P. Vaish was to draw a fixed salary of Rs. 1,000 p.m. commission of 12 1/2% on the net profits of the firm payable after the accounts had been ascertained fully by the auditors and a car allowance of Rs. 250 p.m. It was one of the terms of the appointment that in case the profits exceeded Rs. 1 lakh the commission payable to Shri J. P. Vaish was 25%. Shri J. P. Vaish was also given free medical facility for himself and the members of his family. In terms of the letter of appointment Shri Vaish got no commission in the first year as the mill suffered a loss. In the next year the profit being less than Rs. 1 lakh, Shri Vaish received a sum of Rs. 4,063 as commission. For the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vaish, which has been disallowed by the Income-tax Appellate Tribunal was an amount laid out or expended wholly or exclusively for the purpose of the business of the assessee ? " By its judgment dated May 22, 1962, the High Court answered the question against the assessee. Against the judgment of the High Court the present appeal is brought by special leave. Sections 10(2)(x) and 10(2)(xv) of the Income-tax Act, 1922, at the relevant time, read as follows : " 10. (2)(x) Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission : Provided that the amount of the bonus or commission is of a reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 was made due to new design of civilian rugs Shri Vaish introduced for the first time in the mill after studying public tastes and the qualities and designs prevailing in the market. It was also said that Shri Vaish had a special aptitude to show in his work so far as the marketability of the goods was concerned. After the death of Shri Vaish in July, 1947, the firm was converted into a company and the post of the general manager was abolished and one of the directors who managed the affairs of the company was given Rs. 18,000 per annum as remuneration and Rs. 6,000 per annum as allowance for the accounting year 1947-48. The Appellate Tribunal took the view that the post of general manager carried the responsibility equal to that of the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India Ltd., Lakshmi Rattan Cotton Mills Ltd. and the Food Products Ltd., Rampur. In view of the circumstances of the case, it was urged on behalf of the assessee that the entire amount of Rs. 75,465 paid to Shri Vaish was an amount laid out wholly and exclusively for the purpose of the business of the assessee within the meaning of section 10(2)(xv) of the Income-tax Act, 1922. We should make it clear that in this case we are not called upon to decide whether the Income-tax Officer could exercise the power he exercised under section 10(2)(x) of the Income-tax Act. The question referred by the Tribunal and answered by the High Court only deals with the claim of deduction of the amount paid to Shri J. P. Vaish under section 10(2)(xv) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to him. In our opinion, neither the High Court nor the Appellate Tribunal has applied the proper legal test in this case. As pointed out by this court in Commissioner of Income-tax v. Walchand Co. Private Ltd., 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 of 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 exclusively for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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