Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1954-55 - Assessee-company entered into two contracts for supply of coal to Japan through agents - In first contract assessee paid commission at rate of 9.5 per cent but in second contract same was paid at rate of 3 per cent - Assessee claimed commission and as business expenditure - ITO allowed only small portion of expenditure incurred on payment of commission as deduction - Tribunal allowed entire claim of assessee - Whether i t is a normal practice in commercial world to yield to a high rate of commission or to grant special rates of sale in certain cases, e.g., in case of a first customer in a particular area - Held, yes - Whether amount and extent of a particular expenditure would not determine character of that expenditure, if that would be in connection with business itself, in sense that it is an integral part of profit-earning process in that business, it is then allowable as a deduction under section 10(2)(xv) of 1922 Act - Held, yes - Whether high rate of commission paid to agent of assessee in first contract, viz ., 9.5 per cent, approximately, was normal commercial transaction, and assessees were justifiably allowed deduction - Held, yes FACTS The assessee-company had entered into two contracts for supply of coal to Japan through an agent. The first contract stipulated for a rate of commission of 9.5 per cent., whereas in the second contract the commission rate was three per cent. The assessee claimed a deduction of amount paid as commission as expenditure was incurred wholy for the purpose of their business. However, the ITO allowed a small portion of the expenditure incurred on payment of commission and disallowed balance. On appeal, the AAC allowed the entire commission at the rate of 3 per cent only. On second appeal, the Tribunal allowed the entire claim of the assessee under the two contracts. On reference: HELD No doubt, the first contract was the first business that the assessee secured in Japan market and their agent in Japan was responsible for securing that order,…

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