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TMI Blog1963 (4) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... out to ₹ 4-7-9 per lb. The Income-tax Officer also found that the Hindusthan Plastic Co.'s constitution was the same as that of the assessee-firm, that is to say, that Sagarmal Bengani and Hanumanmal Bengani were also partners of the Hindusthan Plastic Co. Originally, the styron in question was imported by the Hindusthan Plastic Co. through an overdraft account with the Hongkong and Shanghai Banking Corporation Ltd. in 1951. The Hindusthan Plastic Co. paid to the bank a sum of ₹ 1,52,231-13-0 an a further sum of ₹ 1,54,704 was due by the Hindusthan Plastic Co. to the bank. The applicant took over the stock of styron and paid to the bank the amount due to it by the Hindusthan Plastic Co. plus the buying charges, godown rent, etc. The applicant also paid to the Hindusthan Plastic Co. the sum of ₹ 1,52,232, being the amount paid by the Hindusthan Plastic Co. to the bank. The applicant showed that it had incurred expenditure to the extent of ₹ 3,07,653 for the purchase of 68,208 lbs. of styron in the manner aforesaid. The Income-tax Officer found that the purchase price had thus been inflated by ₹ 1,18,000, and he resorted to the proviso to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition, so long as the transaction is a genuine or a straightforward one, or is neither colourable nor illusory nor fraudulent (vide Craddock vs Zevo Finance Co Ltd. ( 1946 ) 27 Tax Cas. 267 ( H. L. )). In Newtone Studios Ltd. vs Commissioner of Income-tax ( 1955 ) 28 ITR 378 the assessee was a private limited company owning a studio, and engaged in the production of motion pictures. There were six shareholders, one of whom was the managing director, two were technician directors, and one a technician. The honorarium of these four persons was fixed in 1938 at ₹ 250 each, and a commission at a certain percentage on the net profits. From time to time the honorarium was increased, but the commission remained the same. In 1944 and 1945 the salary paid to these four persons amounted to ₹ 18,000 a year. For 1946 the salary increased to ₹ 59,100 by a resolution of the 30th March, 1946. The income-tax authorities, in view of the increase of profits, allowed only ₹ 36,000 out of this sum of ₹ 59,100 as business expenditure. On a reference to the High Court, it was held that it was not open to the income-tax authorities to adopt a subjective standard o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e secured other employees on more favourable terms. It should however be observed that this decision of the Madras High Court was given before the introduction of section 10(4A) of the Income-tax Act by section 7 of the Finance Act of 1956. There are two judgments of the Supreme Court which may be usefully referred to in this connection. In Commissioner of Income-tax vs Chandulal Keshavlal Co ( 1960 ) 38 ITR 601 ; ( 1960 ) 3 S. C. R. 38 the assessee, a firm, was the managing agent of a company. In accordance with the managing agency agreement, the commission for the accounting year 1950 was a sum of ₹ 3,09,114, but at the oral request of the board of directors of the managed company, the assessee agreed to accept a sum of ₹ 1,00,000 only as the commission. The Appellate Tribunal found (i) that the financial position of the managed company was rather unsatisfactory, (ii) that the assessee had been remitting a part or whole of its commission in the past whenever the profits of the managed company were unsatisfactory, (iii) that the waiver was neither a bounty nor mala fide, and (iv) that the business of the assessee was so linked up with the managed company tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness ; and it is immaterial that the third party also benefits thereby. But in every case it is a question of fact whether the expenditure was incurred wholly and exclusively for the purpose of the trade or business of the assessee. The other Supreme Court decision I had in mind was the one in Commissioner of Income-tax vs Royal Culcutta Turf Club ( 1961 ) 41 ITR 414 ; ( 1961 ) 2 S. C. R. 729 In this case the Royal Calcutta Turf Club was an association of persons whose business it was to hold race meetings on a commercial basis. The turf club itself did not own any horse or employ jockeys. As it was of opinion that there was a risk of jockeys becoming unavailable and that such unavailability would seriously affect its business, the turf club established in 1948 a school for the training of Indian boys as jockeys. During the year ending March 31, 1949, the turf club spent a sum of ₹ 62,818 on the running of the school and claimed that amount as a deduction under section 10(2) (xv) of the Income-tax Act. It was held, (i) that, though the question whether the item of expenditure was wholly and exclusively laid out for the purpose of the assessee's business must be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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