Deductibility of selling agent commission and delayed provident fund interest depends on genuineness, business nexus, and actual services rendered

Commission paid to a sole selling agent is treated as allowable business expenditure where the arrangement is genuine, the agreement and payments are accepted, services are actually rendered, and the expenditure is shown to have a business nexus; commercial necessity is not the sole test. Interest paid on delayed contribution to a provident fund trust is also treated as deductible business expenditure, and is not equated with penal damages. The note states that both deductions were accepted on the basis of established genuineness, actual service, and business purpose.

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Issues: (i) Whether commission paid to the sole selling agent was an allowable business expenditure as incurred wholly and exclusively for the assessee's business; (ii) Whether interest paid on delayed contribution to the provident fund trust was deductible.

Issue (i): Whether commission paid to the sole selling agent was an allowable business expenditure as incurred wholly and exclusively for the assessee's business.

Analysis: The Tribunal's findings that the firm was a genuine registered firm, that the agreement and payments were not doubted, and that services were actually rendered were based on appreciation of evidence. In such a situation, the existence of commercial necessity is not the sole test; what matters is whether the expenditure was laid out for business purposes and was supported by material on record.

Conclusion: The commission payment was allowable and the question was answered in favour of the assessee.

Issue (ii): Whether interest paid on delayed contribution to the provident fund trust was deductible.

Analysis: Interest on delayed payment of statutory dues is allowable as business expenditure. The interest paid on delayed provident fund contribution was treated as deductible, and it was not equated with penal damages.

Conclusion: The interest was deductible and the question was answered in favour of the assessee.

Final Conclusion: The reference was disposed of by holding that both the commission expenditure and the interest on delayed provident fund contribution were allowable deductions, with the result that all referred questions were answered against the Revenue.

Ratio Decidendi: Where the genuineness of the arrangement, actual rendition of services, and business nexus of the expenditure are established, commission paid to a selling agent is deductible; similarly, interest paid for delayed remittance of statutory provident fund dues is an allowable business deduction.

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