1965 (9) TMI 62 - HC - Income Tax

Summary

Issues:
1. Whether the sum of Rs. 12,000 credited by the assessee as managing agency commission should be included in the total income.
2. Whether the sum of Rs. 12,000 can be considered as an expenditure entitled to deduction under section 10(2)(xv).

Analysis:

Issue 1:
The case involved the assessment year 1960-61 where the assessee, a registered firm, was the managing agent of a public limited company. The firm was entitled to remuneration as per the articles of association, including an office allowance and a commission on profits. The firm directed the company to pay Rs. 12,000 as managing agency commission to Chevalier J.L.P. Roche Victoria. The Income-tax Officer added this amount to the total income of the assessee, which was contested by the assessee. The Tribunal viewed the receipt as income of the assessee, as it was entitled to the amount under the articles of association, even though physically paid to Roche Victoria. The High Court agreed that the Rs. 12,000 was income in the hands of the assessee.

Issue 2:
Regarding the deduction of the Rs. 12,000 as expenditure under section 10(2)(xv), the assessee argued that since Roche Victoria performed the duties at its instance, the amount was for his remuneration. The revenue contended that the payment was a book adjustment and not actually paid by the assessee. The High Court interpreted "actually paid" in a broader sense, considering it as expenditure incurred by the assessee. It found an implied understanding between the assessee and Roche Victoria for the payment, making it an expenditure laid out by the assessee. The High Court concluded that the sum of Rs. 12,000 was income for the assessee and the payment to Roche Victoria was an expenditure within the meaning of section 10(2)(xv), ruling in favor of the revenue.

In summary, the High Court held that the sum of Rs. 12,000 was income for the assessee and the payment to Roche Victoria constituted an expenditure laid out by the assessee, making it eligible for deduction under section 10(2)(xv). The Tribunal's question was answered in favor of the revenue, and a new question framed in favor of the assessee. The assessee was awarded costs, including counsel's fee of Rs. 250.