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 years 1949-50 to 1952-53 - 'C' was a foreign company - Assessee-company was subsidiary of 'C' - Company ICI was also subsidiary of 'C' - ICI terminated sole selling agency of four companies and appointed assessee as its sole selling agents - ICI agreed to pay certain compensation to aforesaid companies against termination of agency to be adjusted against commission payable to assessee - Whether since no agreement between assessee and ICI had been proved, it could be said that amount paid as compensation to ex-agents was expenditure laid out wholly and exclusively for purposes of business of assessee under section 10(2)(xv) of 1922 Act - Held, yes - Whether payment of compensation by assessee to ex-agents was not by an overriding title created either by act of parties or by operation of law - Held, yes Section 256 of the Income-tax Act, 1961 [Corresponding to section 66(1) of the Indian Income-tax Act, 1922] - High Court - Reference to - Assessment years 1949-50 to 1952-53 - Whether High Court is not court of appeal in reference and it is not open it to embark upon reappraisal of evidence and to arrive at findings of fact contrary to those of Tribunal - Held, yes - Whether FACTS The assessee company was a subsidiary of a foreign company namely, 'C', which held entire share capital of assessee. The business of the assessee consisted mainly of acting as selling agents in India for a large variety of goods such as chemicals, dye, explosives, etc., manufactured or purchased by its foreign principals and sold in India. ICI was another subsidiary of 'C'. The ICI had appointed four companies as their selling agents in India. In April 1948, the ICI terminated the services of the aforesaid selling agents and appointed the assessee to its sole selling agent. The ICI had agreed to pay to the former selling agents compensation at the rate of two-fifths, two-fifths and one and one-fifths of the commission earned by the assessee for the three years from 1-4-1948. The compensation was paid to the four companies…

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