An expenditure incurred by a Managing Agent for the purpose of its business, and which is not a bounty or a gratuitous payment, is an allowable expenditure under S. 10(2)(xv) of the Income-tax Act, 1922.

Judgment

KAPUR, J. : This is an appeal by special leave against the judgment and order of the High Court of Bombay. It arises out of a reference by the Income-tax Appellate Tribunal under S. 66 (1) of the Indian Income-tax Act (hereinafter termed the Act). The appellant in this appeal is the Commissioner of Income-tax and the respondent is a partnership firm which by an agreement dated September 23, 1935, was appointed the Managing Agent of the Keshav Mills Ltd., Petlad. For the sake of convenience the respondent firm will, in this judgment, be termed the Managing Agent and the Keshav Mills Ltd., the Managed Company. By Cl. 4 of this agreement the Managing Agent was to get a commission of 4 per cent on the sale proceeds of the cloth, yarn or other goods manufactured and sold by the company and 15 per cent on the amount of bills for charges of ginning and pressing and dyeing or bleaching and on the amount of labour bills and other work done in the running of the factory. The commission was exclusive of other charges such as adat, interest, discount, brokerage etc. The amount of commission was to be credited in the account of the Managing Agent every six months and it was entitled to interest at the rate of six per cent per annum on the amount so credited. There were other conditions in the Agency Agreement which are not necessary for the purposes of this case. The total commission for the accounting year 1950 was a sum of Rs. 3,09,114. Sometime during the accounting year, at the oral request of the Board of Directors of the Managed Company, the Managing Agent agreed to accept a sum of Rs. 1,00,000 only as its commission which was credited to the account of the Managing Agent in the books of the company at the end of the year 1950. The Income-tax Officer and the Appellate Assistant Commissioner held that the amount which accrued as commission to the Managing Agent was Rs. 3,09,114 and that amount was taxable. An appeal was taken to the Income-tax Appellate Tribunal by the Managing Agent. By an order dated February 26, 1953, the Appellate Tribunal held that the amount which accrued to the Managing Agent as commission was Rs. 3,09,114 but it accepted Rs. 1,00,000 as taxable income and Rs. 2,09,114 was held to be an allowable expenditure within S. 10(2)(xv) of the Act and it was therefore allowed. The Tribunal in its order said that in the past also the Managing Agent had, in the interest of the Managed Company, waived a portion of a commission and then made the following observation :

"The Tribunal has also held that if the Managing Agency commission or a part thereof is foregone in the interest of the Managed Company, it would be allowed as an expenditure under S. 10 (2) (xv) of the Act. We allow the amount foregone under S. 10 (2) (xv)."

Against this order, at the instance of the appellant, a case was stated to the Bombay High Court for its opinion on the following two questions :

(i) 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.

(ii) If the answer to question (i) is in the affirmative whether the said sum is an allowable deduction from the assessee s income under S. 10 (2) (xv) of the Act.

The Judgment of the High Court shows that it was inclined to decide the questions in favour of the appellant, but at the instance of the Managing Agent the Appellate Tribunal was directed to submit a supplementary statement.

2. No fresh evidence was led before the Tribunal but it appears that some emphasis was laid on a letter of the Managing Agent dated September 18, 1951, sent to the Income-tax Officer. In this letter the Managing Agent had stated that the only commission which accrued to it was a sum of Rs. 1,00,000 and nothing had been foregone from out of the commission or relinquished. It is also stated that the amount of Rs. 1,00,000 accrued because of the variation of the terms of the Managing Agency Agreement. Reference was also made in the lette