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TMI Blog1973 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 automobile agency and, therefore, it borrowed the funds from these two persons. According to the assessee, it was agreed that it would pay 12 1/2 per cent. of the net profits to each of these creditors who were not to charge any interest from it. The Income-tax Officer rejected the claim of the assessee. He, however, considered that the creditors were entitled to payment of interest at 6 per cent. per annum and to the extent of Rs. 1,500 he allowed the claim of the assessee ; the balance of Rs. 8,617 was disallowed. At Cuttack the assessee had employed one Sri B.M.Parikh. He was drawing a salary of Rs. 4,200 per annum. The assessee had paid to Parikh over and above the salary a sum of Rs. 8,545 as commission at the rate of Rs. 100 per truc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo 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 employee to the extent of Rs. 7,145 under section 10(2)(x) of the Indian Income-tax Act, 1922 ?" I shall briefly refer to the finding of the Income-tax Officer in regard to the two amounts. He says that the profits paid to these two parties from year to year far exceeded the usual rate of interest of 6 per cent. to which they could normally be said to have been entitled on the loans advanced by them. Therefore, in the opinion of the Income-tax Officer there did not appear any business necessity as such for which such a large slice of the assessee's profit could be made over to them. In that view of the matter he allowed 6 per cent. interest which came to Rs. 1,500 for the sum of Rs. 25,000 advanced by the two financiers. Out of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 justified it allowed a sum of Rs. 1,400 and disallowed the balance of Rs. 7,145. In order to answer the two questions referred for determination of this court it is necessary to bear in mind the law on the point. In Easier Investments Ltd. v. Commissioner of Income-tax, the Supreme Court has pointed out that though such questions must be decided on the facts of each case the final conclusion is one of law. It, is not necessary for the assessee to show that the expenditure was a profitable one or that in fact any profit was earned. It is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order in directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tribunal was satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the assessee there was no reason why the full amount expended should not have been allowed. It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assesee in the character of a trader or that it is not laid out wholly and exclusively 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 of the assessee. When a claim for allowance under section 10(2)(xv) of the Income-tax Act is made, the income-tax authorities ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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) of the Act. Coming to the payment on account of commission to Parikh it has to be pointed out again that the payment has not been disbelieved. Parikh was an employee managing the entire Cuttack business of the assessee. It was for the assessee to decide what would be the form of payment to Parikh. It agreed to pay a sum of Rs. 350 per month on account of his salary and in order to induce him to look after the assessee's business properly and efficiently and to push up the sales of the trucks it also agreed to pay a sum of Rs. 100 per truck by way of commission. Merely because there was no written agreement the arrangement and the oral agreement relied upon by the assessee could not be discarded. It was evidenced by the entries in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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