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TMI Blog1955 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... manager of the partnership was employed by the company because he was "greatly experienced, and well versed in the kohlu hiring business having looked after the business of the firm and its predecessors for the last 30 to 40 years." The company entered into an agreement with Pt. Mela Ram by which the remuneration of the Pandit was "to consist of 10 per cent, of the yearly profits of the company after allowing the usual working expenses, interest on loans and advances, repairs and outgoings, depreciation, etc., but without any deduction for taxes, appropriation to reserves and payment of managing agent's commission, subject to a minimum of ₹ 12,000." Mela Ram was also a shareholder in the company, but he held sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income-tax, super-tax or any other tax or duty on income or revenue or allowance for managing agents' commission or for expenditure by way of interest on debentures or otherwise on capital account or on account of any sums which may be set aside in each year out of the profits for reserve or any other special fund, subject to a minimum of ₹ 12,000 in case of absence or inadequacy of profits." For the year under assessment the total income of the company was ₹ 6,34,277 and according to clause 2 of the agreement the amount payable by way of commission to Pt. Mela Ram came to ₹ 81,961 and the company claims this as a deduction under section 10(2) of the Income-tax Act. In paragraph 4 of their petition the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that Shri Mela Ram was not a technical man and there was no reason why he should be granted such huge commission year after year. It also does not appear that this gentleman was called upon to render any service in addition to what he had been rendering in the past. The conditions which governed the payments in the preceding years substantially obtained in the year under appeal also." An appeal was then taken to the Appellate Tribunal who upheld the order of the Appellate Assistant Commissioner on the ground that the amount had been paid "for reasons other than commercial ones." The petitioners then applied for reference to be made under section 66(1) of the Income-tax Act and the Tribunal refused to make the ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous to contend that as soon as an assessee has established two facts, viz., the existence of an agreement between an employer and an employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to come to the conclusion that the payment falls within sub-section (xv) and is made wholly and exclusively for the purposes of the business of the assessee. The Income-tax Officer is entitled to take into consideration the extent of the business, the nature of the services rendered which called for a special remuneration and he can also take into consideration the quantum of the payment made to decide whether the payment was not grossly out of proportion to the work done by the employee. At page 541 Chagla, C.J., o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of it and also refused to state a case, it was held that as to how much should be allowed as reasonable expenditure within the meaning of section 10(2)(xv) was a pure question of fact and did not involve any question of law and therefore the Appellate Tribunal could not be directed to state a case. In that case the Department determined that the amount paid to the employee was not expended wholly and exclusively for the purposes of the business, and having found that they also determined as to how much would properly fall within the class of deduction covered by clause (xv), and the determination of this was held not to be a question of law. I respectfully agree with the opinion given in these cases and in my opinion the question is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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