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TMI Blog1967 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ship deed the firm consisted of four partners of whom the assessee was one and two minors were admitted to the benefits of the partnership. The assessee had 30 per cent. share in the profits and losses of the partnership and the accounts of the partnership were maintained according to Samvat year. Clauses 8, 11 and 12 of the partnership deed, according to the English translation, read as follows : "8. The bankers of the partnership firm will continue to be the same. Accounts in any other banks can be opened when necessary. The bank accounts will be operated by signatures of any two partners or by the representative or power of attorney holder of any of the partners. 11. That whatever resolutions that may be required to be passed will be passed by a majority of votes and the number of votes will be according to the profit sharing proportion. And the business can be conducted in view of such resolutions. 12. That the day to day business of the partners will be carried on by the partners themselves or by the agents appointed by them, and whatever remuneration that may be required to be paid to such agents will be borne by the partner appointing such agent." Now it may be point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese services the assessee paid to Somchand the minimum remuneration of Rs. 15,000 for Samvat year 20.16. This payment of Rs. 15,000 was claimed by the assessee as a deductible expenditure under section 10(2)(xv) in the course of his assessment proceedings for the assessment year 1961-62, the relevant account year being the calendar year 1960. The Income-tax officer disallowed the expenditure on the ground that it was not laid out or expended wholly and exclusively for the purpose of the assessee's business and the disallowance was confirmed by the Appellate Assistant Commissioner. The assessee carried the matter in appeal to the Tribunal and the Tribunal disagreeing with the view taken by the income-tax authorities held that the expenditure of Rs. 15,000 was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, an allowable item of expenditure under section 10(2)(xv). This view taken by the Tribunal is challenged on the present reference. Now it is well-settled by the decisions of the Supreme Court that the question whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the partnership deed required that the day to day business of the partnership should be attended by the partners or their duly authorised agents and there was thus an obligation on the assessee either to attend himself to the day to day business of the partnership or to do so by a duly authorised agent. Now the assessee was at the date of the partnership deed residing in Mombasa situate in British East Africa and he could not, therefore, possibly attend to the day to day business of the partnership or attend the meetings of the partners for the purpose of taking decisions in regard to the affairs of the partnership. It was in these circumstances that the assessee entered into the agreement dated 24th December, 1959, with Somchand in order to see that there was a duly authorised agent to attend to the day to day business of the partnership on his behalf and to protect and secure his interests in the partnership. The assessee agreed to pay Somchand 10 per cent. of his share in the profits of the partnership subject to a minimum remuneration of Rs. 15,000 for the services to be rendered by him. Now it was not the case of the revenue that this agreement was a sham or bogus transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no remuneration was paid to Somchand prior to 1st November, 1959, for the occasional services which were rendered by him pursuant to the authority conferred on him under the power of attorney cannot, therefore, have any bearing on the expediency or otherwise of payment of remuneration to him under the agreement dated 24th December, 1959. It is no doubt true that the assessee came down to India some time during the course of the accounting year and settled down in Bombay. But we do not think that makes any difference in the position. When the agreement dated 24th December, 1959, was made, the assessee was in British East Africa and at that date the assessee was not in a position to attend personally to the business of the partnership and the agreement was, therefore, justified by considerations of commercial expediency. The assessee could certainly put an end to the agreement by giving two months' notice but such notice, provided clause (3), must expire with the end of the accounting year of the partnership and it was, therefore, not open to the assessee to put an end to the agreement before the close of Samvat year 2016, even if at any time during the Samvat year 2016, it was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d affairs of the partnership business and he was unable to do so. These observations, therefore, apply wholly to the facts of the present case, though we may point out that, in our view, it is not essential that a partner should be under an obligation to attend to the management of the partnership business, in order that he may be entitled to claim as a permissible deduction expenditure incurred by him in paying remuneration to an agent appointed for that purpose of attending to the management of the partnership business on his behalf. The Bombay High Court was considering a case where it was incumbent on the partner to attend to the management of the partnership business and that is why the learned judge mentioned that circumstance and relied upon it but that does not mean that the expenditure cannot be admissible where it is not incumbent on the partner to attend toe the partnership business. Every case must be decided on its own facts in the light of the principles of commercial trading and commercial expediency and even if an expenditure is incurred voluntarily on the ground of commercial expediency in order indirectly to facilitate the carrying on of the business, that would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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