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Issues Involved:
1. Adequacy of consideration for the agreement to share managing agency commission. 2. Permissibility of deduction under section 12A or section 10(2)(xv) of the Indian Income-tax Act, 1922, for the assessment year 1961-62. 3. Permissibility of deduction under section 39 or section 37(1) of the Income-tax Act, 1961, for the assessment years 1962-63 to 1965-66. 4. Whether the liability to part with the managing agency commission was at the source of income or after its receipt. Issue-wise Detailed Analysis: 1. Adequacy of Consideration for the Agreement to Share Managing Agency Commission: The court evaluated whether the agreement between the assessee and Pushpa Devi for sharing the managing agency commission was made for adequate consideration. The partnership between the assessee and his uncle dissolved upon the latter's death, and the assessee needed to secure the voting power controlled by Pushpa Devi to continue the managing agency business. The agreement included Pushpa Devi exercising her voting rights in favor of the assessee and advancing Rs. 50,000 at an interest rate of 6% per annum. The court found that the control of voting rights and the financial advance constituted adequate consideration. 2. Permissibility of Deduction under Section 12A or Section 10(2)(xv) of the Indian Income-tax Act, 1922, for the Assessment Year 1961-62: The court noted that the assessee failed to file the required declaration under section 12A of the 1922 Act for the assessment year 1961-62. Consequently, the sum of Rs. 14,228 paid to Pushpa Devi could not be deducted under section 12A. The court also rejected the argument that the amount should not be treated as the income of the assessee under section 10(1), as the liability to part with the income was not incurred at the source but after its receipt. 3. Permissibility of Deduction under Section 39 or Section 37(1) of the Income-tax Act, 1961, for the Assessment Years 1962-63 to 1965-66: For the assessment years 1962-63 to 1965-66, the court found that the requirements of section 39 of the 1961 Act were fulfilled. The declarations were filed, and the payments made to Pushpa Devi were out of the managing agency commission earned by the assessee. The court held that these amounts must be deducted from the assessee's income under section 39 of the 1961 Act. 4. Whether the Liability to Part with the Managing Agency Commission was at the Source of Income or After its Receipt: The court analyzed the terms of the agreement and concluded that the liability to part with a portion of the managing agency commission was incurred after the income had been received by the assessee, not at the source. This distinction was crucial in determining whether the payments could be considered as business expenses under section 10(2)(xv) of the 1922 Act or section 37(1) of the 1961 Act. The court concluded that the parting of income after its receipt did not qualify as an expenditure laid out wholly and exclusively for the purpose of the business. Conclusion: - For the assessment year 1961-62, the sum of Rs. 14,228 paid by the assessee to Pushpa Devi cannot be deducted under section 12A or section 10(2)(xv) of the Indian Income-tax Act, 1922, nor can it be treated as not forming part of the income of the assessee under section 10(1). - For the assessment years 1962-63 to 1965-66, the various sums paid by the assessee to Pushpa Devi must be deducted from the assessee's income under section 39 of the Income-tax Act, 1961. The judgment was delivered by a common judgment for all five tax cases, with no separate judgments by the judges. The court ruled in favor of the income-tax department for the assessment year 1961-62 and in favor of the assessee for the assessment years 1962-63 to 1965-66. No order as to costs was made in any of the tax cases.
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