Law: Income Tax Act, 1922

Section: 10,10(2)(xvi),10(4)(bb),17(1),18(38)

Income Tax Act, 1922 (XI of 1922) -Sections 10(2)(xvi), 10(4)(bb), 17(1), 18(38)-Business expenditure-Commission-Assessee-company doing business of manufacture and export of yarn-Commission paid to non-resident without deduction of tax at source under section 18(3B)-Commission whether admissible deduction from the profits of assessee company as business expenditure--Held no. A close reading of clause (bb) of section 10(4) shows that the language is restrictive and worded in negative. It provides that any allowance in respect of any payment by way of brokerage or commission made to a nonresident person shall not be deemed to be authorised as business expenditure under section 10(2)(xvi) unless tax has been deducted there from under section 18. In other words, the deduction of tax at the time of payment is made a condition to the allowance of the claim in respect of the payment of brokerage or commission. It is pertinent to observe that it is not a condition for the allowance of business expenditure of payment of every kind made to a non-resident person that it shall not be authorised unless tax has been deducted there from under section 18, but only of payment of brokerage or commission which are specifically provided for in clause (bb). As rightly observed by the Tribunal, the intention of the Legislature in enacting clause (bb) appears to be that the amount of brokerage or commission payable to an on resident should not altogether escape the incidence of taxation and the payer who is claiming the deduction of the amount from his profits as a business expenditure must deduct tax at the time of payment in accordance with the provisions of subsection (1) of section 17 of the Act, leaving it either to the non-resident person to obtain a certificate in writing from the Income-tax Officer under the proviso to section 18(2B) specifying the rate at which the tax may be deducted, if any, or a payer to obtain an order to that effect. Section 18(3B) is expressed in the widest possible terms. It covers all sums (other than "interest on securities") chargeable under the provisions of the Act and payable to a non-resident, which are in the nature of income. That is pure…

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