1968 (2) TMI 28 - HC - Income Tax

Business expenditure - whether spent wholly and exclusively for the purpose of the business of the assessee - allowability

Summary

Issues Involved:
1. Whether the sum of Rs. 1,56,806 was wholly and exclusively laid out for the purpose of business and allowable as a business expenditure.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 1,56,806 was wholly and exclusively laid out for the purpose of business and allowable as a business expenditure:

The assessee, Aluminium Corporation of India Ltd., claimed a deduction of Rs. 1,56,806 paid to J. K. Alloys Ltd. as selling agents under an agreement dated December 30, 1949. The Income-tax Officer disallowed the claim, stating that the payment was not made on business considerations but for extraneous reasons. The officer noted that the assessee failed to provide evidence of the nature and extent of services rendered by the selling agents. The officer concluded that the payment was not an expenditure laid out wholly and exclusively for the business of the company.

On appeal, the Appellate Assistant Commissioner agreed with the Income-tax Officer, emphasizing that the agreement had not been acted upon. The Commissioner noted that the assessee could not provide details of the commission and sales related to the services rendered by the selling agents. The Commissioner recorded undisputed facts that all sales were effected directly by the assessee and not by the selling agents, and there was no evidence supporting the assessee's contention that the selling agents effected sales under the agreement.

The Tribunal, however, concluded that the commission paid was wholly laid out for the purpose of business and was an admissible charge against the appellant's income. The Tribunal noted that the agreement allowed commission even if sales were effected directly by the principals, and the agreement had been bona fide and acted upon in previous years.

The High Court, however, found the Tribunal's view unsupported by facts. The Court emphasized that the existence of an agreement and actual payment does not necessarily prove that the expenditure was made wholly and exclusively for business purposes. The Court referred to the Supreme Court decision in Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax, which held that the Income-tax Officer must consider all relevant factors to determine if the expenditure was deductible under section 10(2)(xv) of the Income-tax Act. The Court noted that the Tribunal failed to consider the findings of the Income-tax Officer and the Appellate Assistant Commissioner, which were not upset by the Tribunal.

The Court highlighted that the primary fact to be established under section 10(2)(xv) is that the sum claimed as a deduction was expended wholly and exclusively for the business purpose. A written agreement is a piece of evidence but does not conclusively establish this fact. The Court found no evidence supporting the assessee's claim and noted that the payment appeared to be for idleness, not for business purposes.

The High Court concluded that the Tribunal was wrong and set aside its decision. The Court answered the question in the negative, holding that the sum of Rs. 1,56,806 had not been established to have been spent or laid out wholly and exclusively for the business purpose of the assessee. The Commissioner was awarded costs, certified for two Counsels.