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Issues Involved:
1. Whether the amount of Rs. 12,000 paid to Bai Shirinbai was allowable as a deduction in determining the business profits of the assessee-company u/s 10(2)(xv) of the Indian Income-tax Act, 1922. Summary: Issue 1: Agreement and Contractual Obligation The Tribunal erroneously accepted the submission that the payment to Bai Shirinbai was made in pursuance of an agreement between Kaikhushroo and the company. The agreement dated 31st March, 1958, was between the partners of the managing agency firm and their sons, not the company. The company passed a resolution on 26th June, 1958, for the appointment of Kaikhushroo as a lifetime director with a monthly remuneration of Rs. 2,000 and a provision for Rs. 1,000 per month to his widow after his death. The Tribunal's view that the payment was not ex gratia but in pursuance of an agreement was incorrect. Issue 2: Commercial Expediency The proper test to determine if the expenditure was laid out wholly and exclusively for business purposes is whether the expense was incurred solely to further the trade or business interest of the assessee, unalloyed with any other consideration. The Tribunal's finding that the payment passed the test laid down in s. 10(2)(xv) and was not dictated by extra-commercial considerations was not the correct approach. The payment to the widow did not meet the criteria of being necessitated or justified by commercial expediency. Issue 3: Deferred Remuneration The argument that the payment to the widow was deferred remuneration for Kaikhushroo and Framji was rejected. The remuneration to the widows was not dependent on the length of service of Kaikhushroo and Framji as directors. The payment was not a deferred remuneration but a pension for the widows, which did not fulfill the tests laid down by the Supreme Court in Gordon Woodroffe Leather Manufacturing Co.'s case [1962] 44 ITR 551. Issue 4: Pension for Past Services The payment to the widow was considered a pension for the past services of her husband. However, this payment could not be justified as an allowable deduction u/s 10(2)(xv) as it did not meet the commercial considerations required for such an allowance. The payment was a provision made for the widow of a founder director, not an ordinary employee, and thus did not induce other employees to give their best to the company. Conclusion: The Tribunal's view was erroneous, and the payment of Rs. 12,000 to Bai Shirinbai was not allowable as a deduction in determining the business profits of the assessee-company u/s 10(2)(xv) of the Indian Income-tax Act, 1922. The question referred was answered in the negative and against the assessee. The assessee was ordered to pay the costs of the reference to the revenue.
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