Law: Income Tax Act, 1922

Section: 10(2)(xv)

Income-tax-Business expenditure - Sole selling agency Agreement to pay commission on all sales-No sales effected by agent-Payment of commission to agent-Whether allowable Indian Income-tax Act, 1922, S. 10(2)(xv). A sole selling agency agreement provided that the agents were entitled to a commission on all sales effected, either by them, by their sub-agents or directly by the principals themselves. Though the agents had not effected any sales themselves or through their sub-agents in a particular year, the principals paid a sum of Rs. 1,56,806 to the sole selling agent as commission and claimed this amount as business expenditure: Held, that the mere fact that the payment was admitted, and that the agreement provided for commission on all sales effected was not sufficient to establish a claim under section 10(2)(xv). It had further to be established that the expenditure was incurred solely and exclusively for the purposes of the business. On the facts and in the circumstances of the case, the Tribunal was not right in holding that the sum of Rs. 1,56,806 was wholly and exclusively laid out for the purpose of business and as such allowable as a business expenditure. Aspro Ltd. v. Commissioner of Taxes (1936) 4 I T R 264 (P C) ; Central Distillery & Chemical Works Ltd. v. Commissioner of Income-tax (1955) 27 I T R 100 ; Jethabhai Hirji & Co. v. Commissioner of Income-tax (1949) 17 I T R 533 ; Kedarnath Jute Mfg. Co. v. Commissioner of Income-tax (1958) 67 I T R 56 and Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax (1967) 63 I T R 57 (S C) ref.   JUDGMENT P. B. MUKHARJI, J.--The question asked on this income-tax reference is as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,56,806 was wholly and exclusively laid out for the purpose of business and as such allowable as a business expenditure?" The assessee is the Aluminium Corporation of India Ltd. of 7, Council House Street, Calcutta. The statement of the case relates to the assessment year 1955-56, the corresponding previous year being the financial year ended on March 31, 1955. By an agreement…