1954 (2) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Justification of disallowing Rs. 8,649 as an admissible expenditure.
2. Legal entitlement of the assessee to deduct the amount under the provisions of the Income-tax Act.

Detailed Analysis:

1. Justification of disallowing Rs. 8,649 as an admissible expenditure:
The primary issue revolves around whether the Income-tax Appellate Tribunal was justified in disallowing the sum of Rs. 8,649 claimed by the assessee as an admissible expenditure. The Tribunal's disallowance was based on two main circumstances: (1) Kedarnath Jhunjhunwala did not produce his account books to show that the amount had been actually received by him, and (2) there were no interim payments of the commission to Kedarnath Jhunjhunwala during the accounting year. The High Court found these reasons to be irrelevant and stated that there was no material before the Tribunal to support its finding that the payment was not made. The High Court emphasized that the receipt dated 9th November 1944, presented by the assessee, was not disputed as a genuine document, and the statement of Kedarnath Jhunjhunwala under Section 37 of the Income-tax Act corroborated the payment. The High Court concluded that the Tribunal's reasons had no proximate connection or relevance in determining the alleged payment, thus, the Tribunal was unjustified in disallowing the claim.

2. Legal entitlement of the assessee to deduct the amount under the provisions of the Income-tax Act:
The second issue was whether the assessee was legally entitled to deduct the amount of Rs. 8,649 under the provisions of the Income-tax Act. The High Court examined the applicability of Section 10(2)(x) and Section 10(2)(xv) of the Income-tax Act. Section 10(2)(x) allows deduction of any sum paid to an employee as bonus or commission for services rendered, provided it is of a reasonable amount and not payable as profits or dividend. The High Court found that Kedarnath Jhunjhunwala was employed as the chief manager and was paid the commission for his services, thus satisfying the conditions of Section 10(2)(x). Moreover, Section 10(2)(xv) permits deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business. The High Court held that the payment to Kedarnath Jhunjhunwala was a remuneration for services rendered and calculated with reference to the total profits, thus falling within the ambit of Section 10(2)(xv). The High Court also referenced the principle laid down in British Sugar Manufacturers Limited v. Harris, which supports the view that remuneration by way of commission calculated on profits is a proper deduction. Consequently, the High Court concluded that the Tribunal was not justified in disallowing the Rs. 8,649 and that the assessee was entitled to the deduction as a matter of law.

Conclusion:
The High Court answered the reference in favor of the assessee, holding that the Income-tax Appellate Tribunal was not justified in disallowing the sum of Rs. 8,649 as an admissible expenditure. The assessee was entitled to the deduction under both Section 10(2)(x) and Section 10(2)(xv) of the Income-tax Act. The consolidated hearing fee was assessed at Rs. 200.