Law:

Section:

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 - Whether where assessee carries on same business at number of places, there is for purpose of section 10 of 1922 Act, only one business, and net profit of business have to be ascertained by pooling together profits earned in all branches and deducting therefrom all expenses - Held, yes - Whether fact that some of said branches are in foreign territories will make no difference in position, if assessee is resident and ordinarily resident within taxable territories - Held, yes FACTS The respondent-company was carrying on business in cotton and was a resident and ordinary resident in India. It had its head office in Bombay and a branch at Karachi. For the relevant years the respondent company paid to its managing agents the commission fixed at 20 per cent of net annual profits and apportioned same to profits of Bombay and Karachi respectively. However, the ITO took into account the profits earned both in India and in Karachi, deducted therefrom the entire commission paid to the managing agents, and determined the total income of respondent. Thereafter, in order to avoid double taxation, the ITO granted abatement under section 49AA taking into account profits of Karachi branch after deducting amount of commission apportioned thereon. The AAC confirmed the order of ITO. The Tribunal held that under the terms of the managing agency agreement, the entire commission was payable at Bombay, and that accordingly no portion of it should be debited to the Karachi branch. On reference, the High Court held that the managing agency commission should in its entirety be debited to the Bombay branch, even though the duty of the managing agents lay in part in Karachi and that, therefore, amount paid to the managing agents as commission at 20 per cent of the net profits of the Karachi branch, was allowable as a revenue deduction against the Indian profits of the assessee-company. On appeal to the Supreme Court: HELD The question as to whether the respondent was entitled to a particular deduction or not would depend on the…

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