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Issues involved: The judgment involves the question of whether a sum of Rs. 25,000 paid by the assessee to Chandra Sales Corporation as commission on sales was an expenditure laid out and expended wholly and exclusively for the purpose of the business carried on by the assessee.
Summary: The case involved the assessment of M/s. Precision Instrument Manufacturing Co. for the assessment year 1965-66. The assessee, a partnership concern, appointed M/s. Chandra Sales Corporation as their sole selling agents. The commission agreement stated that the concern would receive 7 1/2 per cent. commission on sales up to Rs. 2,50,000 and 10 per cent. on sales beyond Rs. 3 lakhs. However, questions arose regarding the genuineness of the arrangement as the firm of Chandra Sales Corporation was found to consist of relations of the assessee's partner, Sri Gopal. The Income Tax Officer (ITO) disallowed a part of the commission claim made by the assessee, stating that no firm had actually come into existence and that a significant portion of the commission paid returned to the family of Sri Gopal. The Assessing Officer (AO) and the Appellate Authority Commission (AAC) upheld the ITO's decision. Upon further appeal to the Tribunal, it was argued that the commission payment was legitimate based on the agreement and that the partners of Chandra Sales Corporation had rendered services for the assessee. However, the Tribunal upheld the disallowance of Rs. 25,000, stating that the payment was not made out of commercial expediency. The Tribunal emphasized that the existence of an agreement alone was insufficient to justify the deduction claim. The High Court affirmed the Tribunal's decision, noting that the assessee failed to provide substantial evidence supporting the legitimacy of the arrangement and the services rendered by the selling agents. In conclusion, the High Court held that the disallowance of Rs. 25,000 was justified as it was not expenditure incurred wholly and exclusively for the purpose of the business. The Court highlighted that the partners of Chandra Sales Corporation were not qualified enough to promote the assessee's sales, and the arrangement appeared to be based on non-business considerations. The Court rejected the assessee's arguments and ruled in favor of the department, ordering the assessee to pay the costs.
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