TMI Blog1960 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... inted the managing agent of the Keshav Mills Ltd., Petlad. For the sake of convenience the respondent firm will, in this judgment, be termed the managing agent and the Keshav Mills Ltd., the managed company. By clause 4 of this agreement the managing agent was to get a commission of 4 per cent. on the sale proceeds of the cloth, yarn of other goods manufactured and sold by the company and 15 per cent. on the amount of bills for charges of ginning and pressing and dyeing or bleaching and on the amount of labour bills and other works done in the running of the factory. The commission was exclusive of other charges such as adat, interest, discount, brokerage, etc. The amount of commission was to be credited in the account of the managing agent every six months and it was entitled to interest at the rate of six per cent. per annum on the amount so credited. There were other conditions in the agency agreement which are not necessary for the purposes of this case. The total commission for accounting year 1950 was a sum of Rs. 3,09,114. Sometime during the accounting year, at the oral request of the board of directors of the managed company, the managing agent agreed to accept a sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was also made in the letter to the balance-sheet of the managed company ending December 31, 1950, showing that the paid up capital was rupees 30 lakhs, depreciation fund rupees 14 lakhs, totalling rupees 44 lakhs. As against this sum the block account showed a debit of over rupees 48 lakhs and it was with the object of strengthening the financial position of the managed company and in its interest that the chairman of the board of directors had requested and the managing agent had agreed to accept rupees 1 lakh as commission. The Income-tax Appellate Tribunal submitted a supplementary statement of case dated May 3, 1954, in which it said (1) that there was no oblique motive in accepting Rs. 1,00,000 instead of rupees 3 lakhs odd as commission and that the remission was bona fide. It was also remarked that it was not even faintly suggested by the Department that what was given up by the managing agent from the commission was done with some dishonest motive ; (2) the amount foregone by the managing agent was an expenditure incurred wholly and exclusively for the purpose of the business of the managing agent ; (3) that when the appeal was decided by the Appellate Tribunal it did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. " Therefore the question in regard to section 10(2)(xv) was answered in favour of the managing agent. It is against this judgment and order that the appellant has come in appeal to this court by special leave. For the appellant it was argued that there was no evidence in support of the finding that the amount of about rupees 2 lakhs which was foregone by the managing agent was wholly and exclusively laid out for the purpose of the managing agent's business and emphasis was laid on the finding of the Appellate Tribunal in its order dated February 26, 1953, that in the past the commission had been given up by the managing agent in the interest of the managed company and that if the managing agent's commission or part thereof was foregone in the interest of the managed company it was not an allowable expenditure under section 10(2)(xv). It was also argued that there was no evidence in support of the finding that the amount was expended for the benefit of the managing agent and that even if as a result of the amount being foregone the managing agent was helped because it benefited the managed company, then section 10(2)(xv) would not be attracted ; in other words the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The British company paid fire insurance premiums in respect of the premises machinery etc., and claimed deductions for the sums so paid out of its profits and for wear and tear of the machinery and plant of the transferred business. It was held that the insurance premiums did not represent money wholly and exclusively laid out for the purpose of trade of the assessee company as the machinery and plant were not used for those purposes and the deductions claimed were therefore not admissible. It was argued in that case that by the agreement the assessee company had secured not only the right to receive up to the sum specified but also that the American company would have an incentive to send business to the assessee company in order that, its profits should reach that specified figure and therefore the expenditure was deductible. But it was held that in order to be so deductible it had to be for the benefit of the trade which immediately concerned the assessee company. It was also held that if it was of such a nature then the deduction was prima facie a proper one even though it might inure to the benefit of a third party and the matter had to be tested from the point of view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the transaction was voluntarily entered into in order indirectly to facilitate the carrying on of the business of the company and so made on the ground of commercial expediency. The argument that the debentures were held by the shareholder was rejected on the ground that it made no difference whether the debentures were held by the shareholder or by an outsider. The test laid down by this case, therefore, was that in the absence of fraud or an oblique motive and if a transaction is of a nature which is entered into in the course of business of the assessee and is commercially expedient then it does become a deductible allowance. If as a result of the transaction the assessee benefits it is immaterial that a third party also benefits thereby. At page 5 Bose, J., observed : " In the absence of a suggestion of fraud this is not relevant at all for giving effect to the provisions of section 12(2) of the Income-tax Act. Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for itself. The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int in that case was that the amount was not wholly and, exclusively written off for the purpose of the assessee company. Viscount Maugham said : " Is there any real ground for contending on the evidence that one reason for writing off the sum was not to enable Coming Fashions Ltd., to continue to carry on its business as compiler and vendor of ' Everywoman's ' ? " The cases we have discussed above show that it is a question of fact in each case whether the amount which is claimed as a deductible allowance under section 10(2)(xv) of the Income-tax Act was laid out wholly and exclusively for the purpose of such business and if the fact-finding tribunal comes to the conclusion on evidence which would justify that conclusion it being for them to find the evidence and to give the finding then it will become an admissible deduction. The decision of such questions is for the Income-tax Appellate Tribunal and the decision must be sustained if there is evidence upon which the Tribunal could have arrived at such a conclusion. Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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