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TMI Blog1975 (7) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to M/s. Symonds Co. Ltd. is a revenue expenditure allowable under section 37 of the Income-tax Act, 1961, in its hands ? " The assessment year involved is 1964-65 with the previous year ending on 31st of December, 1963. The assessee is a private limited company. On 23rd of December, 1961, it entered into an agreement of sole selling agency with M/s. Symonds Company (P.) Ltd. (hereinafter referred to as the " manufacturing company") for the sale of its products, such as sports goods, etc. Under the agreement, the assessee was entitled to a commission of 20% on sales. It appears that the manufacturing company got into a financial difficulty and to tide over that difficulty it requested the assessee-company to reduce its commission and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure having been incurred wholly and exclusively for the purposes of business on account of commercial expediency. The department is aggrieved. Hence, this reference. Section 28 of Part D of Chapter IV of the Act deals with profits and gains of business or profession. Section 29 provides that the income referred to in section 28 shall be computed in accordance with the provisions of sections 30 to 43A. Section 30 onwards set out various deductions that have to be allowed in the computation of business income. These deductions are, however, not exhaustive. Section 37 is a residuary provision providing for the allowance of any expenditure laid out or expended wholly or exclusively for the purpose of business or profession provided it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely for the purposes of the assessee's business is a question which involves, in the first place, the ascertainment of facts by the Tribunal and, in the second place, the application of the correct principle of law to the facts so found. The question, therefore, is a mixed question of fact and law. It is a question of law because the Appellate Tribunal has to determine what is the meaning of the statutory phrase " expenditure laid out or expended wholly and exclusively for the purposes of the business. " The proper construction of statutory language is always a matter of law and, therefore, the claim of the assessee in any particular case that he is entitled to deduction of certain items of deductions under section 10(2)(xv) of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in question as a prudent businessman in order to save and preserve a steady source of income, and, lastly, (vi) That on these facts the expenditure could be said to have been laid out or expended wholly and exclusively for the purposes of business. We are of opinion that the circumstances relied upon by the Tribunal are all relevant and the Tribunal has not committed any error in coming to the final conclusion. Some emphasis was laid on the fact that the two companies are inter-connected having a common set of directors. This circumstance, in our opinion, does not in any way affect the validity of the conclusion reached by the Tribunal. There is no suggestion, much less a finding, that the two resolutions passed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards expenses has also to be accepted. It is true that the expenditure was incurred voluntarily and not under any compulsion except the compulsion of commercial expediency. But that circumstance is again immaterial. Reference may be made in this connection to the observations of Lord Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 191 (HL) A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade." This test has been quoted with approval and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sinessman. We have no hesitation in holding that the expenditure in question had been incurred wholly and exclusively for purposes of the assessee's business. The expenditure also was not of a capital nature inasmuch as it did not bring into existence any asset or benefit of lasting nature to the assessee. It had been incurred to preserve and develop an existing source of income. The view that we have taken finds full support from a decision of the Supreme Court in Commissioner of Income-tax v. Chandulal Keshavlal Co. [1960] 38 ITR 601 (SC). That was also a case where the assessee, a company which was the managing agent of another company, gave up a part of its commission in order to help the managing company. The Appellate Tribunal found ..... X X X X Extracts X X X X X X X X Extracts X X X X
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