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 - Assessment year 1950-51 - Assessee was managing agent of 'A', 'B' and 'C' companies - It followed mercantile system of accountancy - According to that method it received sum of Rs. 10,167 and Rs. 9,973 from 'C' Ltd. in year prior to assessment year in question - For assessment year in question assessee did not receive any managing commission from above 'C' Ltd. - Out of total debit of Rs. 20,140 assessee received only Rs. 12,390 and waived balance of Rs. 7,750 - This waived amount was claimed as deduction under section 10(2)(xv) of 1922 Act - Whether amount waived by assessee could not be considered as expenditure so as to entitle assessee to claim deduction under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee-company was the managing agent of 'A', 'B' and 'C' companies. The assessee-company kept the accounts according to the mercantile system and debited the respective managed companies with what be due towards the managing agency commissions at the end of the year. Prior to the assessment years in question the assessee showed commission amount from 'C' Co. to be Rs. 10,167 and Rs. 9,973. For the assessment year in question, the commission from 'A' Ltd. Rs. 7,500 from 'B' Ltd. and nothing from 'C' Ltd. Further, the assessee prayed out of the aforesaid Rs. 20,140 to deduct Rs. 7,750 which was claimed to have been waived in favour of the 'C' Ltd. out of what was due from the company on account of the commissions for the period prior to the assessment year. This plea for the deduction was put forward as the amount being a bad debt, but when the appeal came up to the Appellate Tribunal, the claim was also urged on the basis of its being revenue expenditure under section 10(2)(xv) of 1922 Act. The Tribunal held that the release neither would amount to a bad debt nor would be covered section 10(2)(xv) of 1922 Act. On reference : HELD That 'C' Ltd. were not making commercial profits and had been for years suffering heavy losses was not disputed. That the assessee-company had given up the amount was…

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