Law: Income Tax Act, 1922

Section: 10(2)(xv),66(2),66(1)

Law: Income Tax Act, 1922

Section: 10(2)(xv),66(2),66(1)

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1945-46 - Assessee-company appointed a firm managed by two group of families as its managing agent - Under management agency agreement remuneration was payable for services rendered by managing agents for promotion of assessee-company and for rendering services to company - However subsequently there was dispute between two groups of families in said firm which had been appointed as assessee's managing agent - Assessee terminated management agency of said firm for which it had to pay compensation to them - Said compensation paid was claimed as deduction under section 10(2)(xv) which was disallowed by ITO, AAC and also by Tribunal - Before Tribunal assessee failed to produce any evidence regarding any services provided by managing agents - Assessee also made no effort to state that how its business would have suffered by quarrels between two group of families - Whether expenditure incurred for remunerating persons who had promoted company was not in law a revenue expenditure admissible under section 10(2)(xv) of Act 1922 and if no services were rendered by managing agents, remuneration must be regarded as exclusively payable for services rendered by managing agents in promotion of company - Held, yes - Whether, therefore, expenditure could not, in circumstances, be said to be incurred wholly and exclusively in interest of business of company - Held, yes FACTS The shares of the Assessee-company were held in equal moities by members of two families, 'S' and 'G',. Under a deed S and G formed a partnership to carry on, in the name of 'BK', several businesses including the business of secretaries, treasurers and agents of the company. By agreement the company appointed the firm 'BK' as its managing agents. Under the articles of association of the company appointed two ex-officio directors nominated by "BK" under the managing agency agreement provided for remuneration and period for which said agreement would remain in force and their removal thereafter etc. Disputes arose between the family 'S'…

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