THE COMMISSIONER OF INCOME-TAX, BOMBAY vs. CHANDULAL KESHAVLAL & CO., PETLAD

CIVIL APPEAL No. 167/1958Supreme Court[1960] 3 S.C.R. 3817 February 1960Bench: 3 JudgesAuthor: S.K. DAS, J.L. KAPUR, M. HIDAYATULLAH13 pages
AI SummaryDismissed

What were the facts?

The assessee, a Managing Agent for Keshav Mills Ltd. (the Managed Company), was entitled to a commission of Rs. 3,09,114 for the accounting year 1950. At the oral request of the Managed Company's Directors, the assessee agreed to accept only Rs. 1,00,000 and relinquished the balance of Rs. 2,09,114. The Income-tax Officer and Appellate Assistant Commissioner held the entire Rs. 3,09,114 taxable. The Income-tax Appellate Tribunal allowed Rs. 2,09,114 as deductible expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The High Court, after a supplementary statement from the Tribunal, upheld the Tribunal's decision. The Commissioner of Income-tax appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the finding of the Tribunal that the amount relinquished (Rs. 2,09,114) was laid out wholly and exclusively for the purpose of the assessee's business was a finding of fact. As there was evidence to support this finding, it could not be interfered with. The Court emphasized that in determining deductible expenditure, commercial expediency and ordinary commercial trading principles are paramount. If an expenditure is incurred for the purpose of the assessee's trade or business, it does not matter if a third party also benefits. The transaction must be a legitimate part of the assessee's commercial undertaking to facilitate its business. The Tribunal found that the relinquishment was for commercial expediency, to strengthen the Managed Company, and that this would benefit the assessee in the future. Therefore, it was a deductible expense under Section 10(2)(xv). The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,09,114 was assessable in the hands of the assessee as its income. (Question of law) 2. If the answer to question (i) is in the affirmative, whether the said sum is an allowable deduction from the assessee's income under Section 10(2)(xv) of the Act. (Question of mixed law and fact) Assessee's Contentions (implied from Tribunal's finding and High Court's decision): The relinquished amount of Rs. 2,09,114 was not taxable income because it was foregone for reasons of commercial expediency, specifically to strengthen the financial position of the Managed Company, which in turn would benefit the assessee's future commission earnings. It was not a bounty or gratuitous payment. Revenue's Contentions: The sum of Rs. 3,09,114 had accrued to the respondent as commission, and the entire amount was taxable. The relinquishment was not an expenditure incurred wholly and exclusively for the purpose of the assessee's business, but rather an indirect benefit to the Managed Company.

Which sections of the Income-tax Act were involved?

Section 10(2)(xv)

AI-generated summary — verify with the full judgment below

Febt-ua,..v. t'J 38 SUPREME COURT REPORTS [1960] THE COMMISSIONER OF INCOME-TAX, BOMBAY v. CHANDULAL KESHA VLAL & CO., PETLAD (S. K. DAs, J. L. KAPUR and M. HrnAYATULLAH, JJ.)

Income-tax-Managing Agent relinquishing part of commission due from managed company-Whether amount relinquished is deduc- tible as expenditure expended wholly and exclusively for purpose of his business-Finding, if one of fact-Indian Income-tax Act, I922 (XI of I922), s. ro(2) (xv).

The assessee was the Managing Agent of a company and for the accounting year 1950 its total commission was Rs. 3,09,n4. At the oral request· of the Directors of the Company made during the accounting year.the assessee agreed to accept Rs. l,00,000 only as its commission and relinquished the balance. The Income-tax Officer and the Appellate Assistant Commissioner held that the sum of Rs. 3,09,n4 had accrued to the respondent as commission and that the whole amount was taxable. On appeal the Appellate Tribunal held that out of the accrued com- mission the amount relinquished, i.e. Rs. 2,09,114, was allowable expenditure under s. 10(2) (xv) of the Income-tax Act. The Tribunal found that: (i) the financial condi

The order continues below.

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