Case: The Commissioner Of Income-Tax,Bombay Vs. Chandulal Keshavlal &amp; Co., Petlad

Company even though it may affect very closely the trade or business of another was not the same thing as that others trade or business. In computing the profits and gains of the assessee, it is his trade that is to be regarded. At page 110 (of 1941-9 ITR (Sup.) ), Viscount Maugham observed:"My Lords, the question thus put answers itself. There were, beyond dispute, the two relationships between the Company and the Coming Fashions Ltd., already referred to. The allowance of the ? 2927 5s. 8d. to Coming Fashions Ltd., might have been laid out or expended for the purpose of the trade of Coming Fashions Ltd., or to some extent for both purposes and it is plain that these facts alone were sufficient to show that there was evidence to justify the conclusion of the Commissioner that the written off was not written off wholly and exclusively for the purpose of the trade or business of the Appellants."The connection between the assessee company and the subsidiary company, apart from the holding of shares, was that the assessee company did printing for the subsidiary company. The effect of the transaction was debiting of another entitys loss to the assessee company but there was no direct connection between the profits of the assessee company with that of the amount claimed. The real point in that case was that the amount was not wholly and exclusively written off for the purpose of the assessee company. Viscount Maugham said:"Is there any real ground for contending on the evidence that one reason for writing of the sum was not to enable Coming Fashions Ltd., to continue to carry on its business as compiler and vendor of Every womans?"The cases we have discussed above show that it is a question of fact in each case whether the amount which is claimed as a deductible allowance under S. 10 (2) (xv) of the Income-tax Act was laid out wholly and exclusively for the purpose of such business and if the fact-finding tribunal comes to the conclusion on evidence which would justify that conclusion it being for them to find the evidence and to give the finding then it will become an admissible deduction. The decision of such questions is for the Income-tax Appellate Tribunal and the decision must be sustained if there is evidence upon which the Tribunal could have arrived at such a conclusion.8. Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party, (1915) 6 Tax Cas 399 (supra). Another test is whether the transaction is properly entered into as a part of the assessees legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (1951 SCR 594 : (AIR 1951 SC 278 ) (supra) ). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the present case the finding is that it was laid out for the purpose of the assessees business and there is evidence to support this finding. Mr. Palkhivala referred in this connection to Atherton v. British Insulated and Helsby Cables Ltd., (1926) 10 Tax Cas 155, where, at page 191, Viscount Cave L. C., observed:"It was made clear in the above cited cases of (1915) 6 Tax Cas 399, and Smith v. Incorporated Council of Law Reporting, (1914) 6 Tax Cas 477, that 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 purpose of the trade; and it appears to me that the findings of the Commissioners in the present case bring the payment in question within that description. They found (in words which I have already quoted) that the payment was made for the sound commercial purpose of enabling the Company to retain the services of existing and future members of their staff and of increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of ? 31,784 was not money wholly and exclusively laid out for the purposes of the trade under the Rule above referred to, they found that the deduction was admissible - thus in effect, although not in terms, negativing the Crowns contention. I think that there was ample material to support the findings of the Commissioners, and accordingly that this prohibition does not apply."Thus in cases like the present one in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessees benefit the deduction would be claimable.9. The Income-tax Appellate Tribunal has found in favour of the Managing Agent that the amount was expended for reasons of commercial expediency, it was not given as a bounty but to strengthen the Managed Company and if the financial position of the Managed Company became strong the Managing Agent would benefit thereby.That finding is one of fact. On that finding the Income-tax Appellate Tribunal rightly came to the conclusion that it was a deductible expense under S. 10 (2) (xv).

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The cases we have discussed above show that it is a question of fact in each case whether the amount which is claimed as a deductible allowance under S. 10 (2) (xv) of the Income-tax Act was laid out wholly and exclusively for the purpose of such business and if the fact-finding tribunal comes to the conclusion on evidence which would justify that conclusion it being for them to find the evidence and to give the finding then it will become an admissible deduction. The decision of such questions is for the Income-tax Appellate Tribunal and the decision must be sustained if there is evidence upon which the Tribunal could have arrived at such a conclusion.8. Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party, (1915) 6 Tax Cas 399 (supra). Another test is whether the transaction is properly entered into as a part of the assessees legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (1951 SCR 594  : (AIR 1951 SC 278  ) (supra) ). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the present case the finding is that it was laid out for the purpose of the assessees business and there is evidence to support thisin cases like the present one in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessees benefit the deduction would be claimable.9. The Income-tax Appellate Tribunal has found in favour of the Managing Agent that the amount was expended for reasons of commercial expediency, it was not given as a bounty but to strengthen the Managed Company and if the financial position of the Managed Company became strong the Managing Agent would benefit thereby.That finding is one of fact. On that finding the Income-tax Appellate Tribunal rightly came to the conclusion that it was a deductible expense under S. 10 (2) (xv).