1966 (9) TMI 19 - HC - Income Tax

Assessee entered into a contract for supply of coal to Japan - commission paid - There was nothing by way of advantage of any enduring benefit in that transaction; neither the assessee obtained any monopoly rights nor any abnormal concessions in regard to the supply of coal in that country or to their purchasers - entire commission is allowable as a deduction under s. 10(2)(xv)

Summary

Issues:
- Allowability of deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 for the sum of Rs. 2,88,504 paid as commission to a company in America.

Detailed Analysis:

The case involved a public limited company claiming a deduction of Rs. 5,60,245 as business expenditure paid as commission to a company in America. The Income-tax Officer initially allowed a partial deduction, which was further adjusted by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal examined the contracts and correspondence, revealing that the company had secured contracts for coal supply in Japan through its agent, for which a high commission was paid. The Tribunal found the commission rates to be in line with commercial practices and allowed the deduction in full, leading to a dispute with the revenue department.

The revenue argued that the high commission paid for securing the Japanese market was not incidental to the business and did not provide enduring benefits. However, the court held that the nature of expenditure, if integral to the profit-earning process, is allowable under section 10(2)(xv) of the Act. The court distinguished previous cases where expenditure led to enduring benefits or assets, emphasizing that the high commission in this case was a normal commercial transaction necessary for securing business in a new market.

The court referenced cases such as Atherton v. British Insulated and Helsby Cables Ltd., Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, Henderson v. Meade-King Robinson & Co. Ltd., and Bhor Industries Ltd. v. Commissioner of Income-tax to differentiate between revenue and capital expenditures based on the nature of the advantage obtained. Conversely, cases like Bombay Steam Navigation Co. Private Ltd. v. Commissioner of Income-tax and India Cements Ltd. v. Commissioner of Income-tax were cited to support the allowance of expenditure integral to the profit-earning process without conferring enduring benefits.

Ultimately, the court ruled in favor of the assessee, affirming the deduction of the commission paid as it was deemed essential for the profit-earning process without providing any lasting advantage. The judgment favored the commercial necessity and normalcy of the transaction, leading to the decision in favor of the assessee without costs incurred in the reference.

Judgment:
- Question answered in the affirmative.