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Disallowance of expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. Analysis: The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the disallowance of specific items of expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The primary issue was whether the Tribunal was correct in disallowing the items of Rs. 4,800, Rs. 12,785, and Rs. 1,500 as expenditure within the mentioned clause. The assessee, a private limited company acting as managing agents for two other companies, faced disallowance of these expenses related to entertainment allowance, brokerage, and travelling allowance. The agreements between the parties were crucial in determining the nature of these expenses. The judgment highlighted the principles governing the allowability of expenditure under section 10(2)(xv), emphasizing commercial expediency and ordinary commercial trading practices. The test applied was whether the expenditure facilitated the business and was supported by commercial expediency. The judgment cited various cases to support this principle, including Sassoon J. David and Co. P. Ltd. v. CIT and Addl. CIT v. Kuber Singh Bhagwandas. Regarding the specific items of expenditure, the court analyzed each in detail. The disallowance of Rs. 4,800 as entertainment allowance to a director was upheld due to lack of nexus with the assessee's business activities during the relevant account year. However, the disallowance of Rs. 12,785 and Rs. 1,500 related to brokerage and travelling expenses was overturned. The court reasoned that these expenses, although resembling capital expenditure for the managed company, were revenue expenditures for the assessee, as they aimed at promoting the business of the managed company, thereby increasing the commission payable to the assessee. The judgment relied on precedents such as Tata Sons Ltd. v. CIT and CIT v. Chandulal Keshavlal & Co. to establish the link between such expenses and business expediency. The court emphasized that if the expenditure benefited the assessee's business by enhancing the profits of the managed company, it could be considered allowable under section 10(2)(xv). The court differentiated the case from Indian Press Exchange Ltd. v. CIT, where commission payments lacked a valid business purpose. In conclusion, the court held that while the disallowance of Rs. 4,800 was justified, the disallowance of Rs. 12,785 and Rs. 1,500 as expenditure under section 10(2)(xv) was incorrect. The judgment underscored the importance of commercial expediency and the nexus between expenditure and business activities in determining the allowability of expenses.
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