TMI Blog1973 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, Patna Bench, has stated a case and referred two questions of law for the opinion of this court. The facts may be conveniently stated from the statement of case. The assessee is a Hindu undivided family. It carried on business as a dealer in TataMercedes-Benz Chassis, motor spare parts petrol, mobil, tyres, tubes, etc. The principal place of business of the assessee was at Jamshedpur. It had also a branch at Cuttack where the business was run under the name and style of "Utkal Automobiles". This reference relates to the assessment year 1957-58, the corresponding accounting period being Sambat year 2012. The assessee filed a return showing an income of Rs. 45,426. The Income-tax Officer determined the assessee's income from his business at Rs. 1,37,991. Two additions made by the Income-tax Officer are in dispute in this case. A sum of Rs. 10, 117 was paid by the assessee out of the share of his profits to Sarvasri D. M. Patel and R. M. Patel. The assessee had taken an advance of Rs. 12,500 from each of the two persons adoresaid in the year 1952, when it started its business. At that time the assessee was in urgent need of capital, according to him, for running an automobil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,117 on account of the sahre of profit paid to the two financiers. In regard to the amount of commission paid to Parikh the Tribunal states in the statement of case that he was already paid a salary of Rs. 350 per month. The assessee had paid commission to other parties and brokers in connection with the sales of the vehicles. The Mercedes truck had a reputation of its own in the market and was readily saleable ; therefore, it did not justify payment of commission at the rate of Rs. 100 per vehicle. Since the employee was looking after the assessee's business in a capable way it considered justified to allow him a bonus payment to the tune of Rs. 1,400 as being incurred wholly and exclusively for the purpose of the business. The two questions referred for determination by this court are : "(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in not allowing a sum of Rs. 7,117 paid to D. M. Patel and R. M. Patel under section 10(2)(iii) or under section 10(2)(xv) of the Indian Income-tax Act, 1922? (2) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in not allowing commission on sale to an emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not proved to be genuine. Since, in the case of unsecured loans the rate of interest payable may be as high as 12 per cent. it directed deduction of Rs. 3,000 from the total sum of Rs. 10,117. In regard to the other item the finding of the Income-tax Officer is that there was no written agreement between the assessee and Sri Parikh for payment of the commission of Rs. 100 per vehicle. There did not seem to have been any necessity for payment of such commission from the business point of view and hence it was not allowable as a business expenditure. The entire sum of Rs. 8,545 was disallowed. The Appellate Assistant Commissioner on the grounds adverted to earlier in this judgment maintained the disallowance of the sum of Rs. 8,545. When the matter went up to the Tribunal it allowed a deduction of Rs. 1,400 but disallowed the balance of Rs. 7,145. The reason given by the Tribunal is that in the absence of evidence of a particular type of service rendered by the employee the alleged agreement to pay Rs. 100 per vehicle could not be said to be a genuine business arrangement for giving additional remuneration to the employee. But considering that a bonus payment to the employee is ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportions and that, therefore, the amounts paid by the assessee to the trust were not allowable expenditure. The Supreme Court reserved the decison. It found that the record showed that the advances were very considerable in the first year. The payments, in a commercial sense, were an expenditure wholly and exclusively laid out for the purpose of the assessee's business and they were, therefore, deductible revenue expenditure. In order to justify the deduction the sum given must be for reasons of commercial expediency. It might be voluntary but so long as it was incurred for the assessee's benefit, e.g., for the carrying on of his business, the deduction would be allowable. In Commissioner of Income-tax v. Walchand and Co. Private Ltd., in the assessment years 1953-54 and 1954-55 was found that the assessee had increased the amount of remuneration of its directors and officers. A portion of the increase was allowed by the Tribunal but a portion was disallowed. In that connection Shah J. (as he then was), delivering the judgment on behalf of the court, said at page 384 : "But for partially rejecting the claim for allowance of the amount paid, no reasons were recorded. If the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account, could not be disbelieved. It was not for the Tribunal to suggest whether from the business point of view the assessee ought to have paid interest to the financiers or should have paid the share in the profit. Payment to financiers by giving shares in the profits is not common. The Tribunal does not say that such a method of payment is unknown to law. If the financiers were good enough to allow the assessee to use the amounts of profits also as loan which was being added every year, then it was not for the department or the Tribunal to suggest whether the assessee ought to have paid off the loan because it was an onerous obligation. Keeping in view the amount of profit assessed which was rupees one lakh and odd payment of a sum of Rs. 10,000 to the two financiers cannot be said to be so onerous from the commercial point of view that there could be a justification for disallowing the sum. I, therefore, answer the first question in favour of the assessee and hold that on the facts and circumstances of the case the Appellate Tribunal was not justified in disallowing a sum of Rs. 7,117 paid to D. M. Patel and R. M. Patel ; the amount was deductible under section 10(2)(xv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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