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TMI Blog1982 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 12,785 and Rs. 1,500 as expenditure within clause (xv) of section 10(2) of the Indian Income-tax Act, 1922 ?" The assessee is a private limited company. The assessee-company functions as managing agents of two other companies, namely, M/s. Straw Products Ltd. and M/s. M. P. Industries Ltd. The managing agency agreements were part of the record of the assessment case and are referred to in the order passed by the Tribunal. These agreements, however, by oversight, were not annexed to the statement of the case. With the consent of parties, copies of these agreements were produced in this court and were admitted as forming part of the statement of the case. Under cl. 3 of both these agreements, the remuneration payable to the assesseecompa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not matter that the payment is voluntary or not necessary or that it also enures to the benefit of a third party. In other words, if the object is business promotion, the expenditure would still be wholly and exclusively for the purposes of the assessee's business even though some other object necessarily results, being inherent in the nature and quality of the expenditure [See Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC), Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP) [FB] and other cases referred to in Kuber Singh's case]. The item of expenditure of Rs. 4,800 has been disallowed on two grounds first that it was not incurred during the relevant account year and, secondly, that it bears no connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to bear any nexus with the business of the assessee-company. The position would have been different had Shri Gupta also promoted the sales of the products of the managed company during the relevant account year. In that case, it could not be said that entertainment expenses which the assesseecompany was bound to incur was partly incurred by Shri Gupta and, therefore, there was good reason to reimburse him for that expenditure. But as the finding is that Shri Gupta did not do any work of promotion of sales of the products of the managed company, the expenditure cannot be said to bear any connection with the assessee's business. The Tribunal, in our opinion, was right in disallowing this expenditure. The second and third items of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the assessee. We have already stated that the assessee's remuneration was in the shape of commission payable at a certain percentage of the profits of the managed company. If the managed company earned more profits, that benefited the assessee, as, that increased the remuneration or commission payable to it. Therefore, an expenditure incurred by the assessee which had the effect of promoting the business of the managed company and to enable it to earn more profit could also be an expenditure for the purposes of the business of the assessee with a view to enable it to earn more commission. The increase in profits of the managed company by the expenditures in question would have directly benefited the assessee-company in its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition the assessee would get a larger commission in future and so the part of the commission remitted by the assessee was given up for reasons of commercial expediency and was business expenditure allowable under s. 10(2)(xv). On the same principles, it has been held by the Calcutta and Gujarat High Courts in CIT v. J. K. Industries (Private) Ltd. [1969] 71 ITR 594 (Cal) and Karamchand Premchand Pvt. Ltd. v. CIT [1982] 137 ITR 209 (Guj), that payment by the managing agency company of expenses incurred by a director of the managed company on foreign tours to explore the possibilities of expansion of business was an allowable expenditure under s. 10(2)(xv). It was observed in these cases that though by reason of the expenses incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess Exchange Ltd. v. CIT [1982] 138 ITR 594. This case is clearly distinguishable. The payment of commission in this case was made to persons who did not render any service to the assessee-company and it was made simply on the ground that they were sons of an influential executive of various concerns with which the assessee had business dealings. The decision has no application to the facts of the case before us. The learned standing counsel also submitted that the question whether a particular item of expenditure is business expenditure is a question of fact and the Tribunal's finding on such a question should not be disturbed. The Tribunal in the instant case did not take into account that the assessee was to be paid as remuneration a com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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