Business expenditure deduction allowed for representative commission paid under a genuine contingency arrangement for canvassing business.

A commission payment to a representative was deductible as business expenditure where it was made under a genuine arrangement for contingency expenses connected with canvassing business, even though there was no proof of actual disbursement to individual recipients. Deduction under section 10(2)(xv) of the Income-tax Act, 1922 depends on the expenditure being laid out wholly and exclusively for business purposes, not on the separate reasonableness test applicable to employee bonus or commission under section 10(2)(x). The tax department could require satisfaction as to business purpose and commercial necessity, but could not insist on proof of the representative's actual spending. The payment was therefore allowable as a deduction.

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Issues: Whether the 5 per cent commission paid by the assessee to its representative was deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922, without proof that the representative had actually spent the amount on contingency expenses.

Analysis: Deduction under section 10(2)(xv) depends on the assessee proving that the expenditure was laid out wholly and exclusively for the purposes of business. The Court distinguished this requirement from the test under section 10(2)(x), which concerns reasonableness of bonus or commission paid to an employee. The amounts in question had admittedly been paid under a genuine arrangement for meeting contingency expenses connected with canvassing business. The department was entitled to be satisfied about the business purpose and commercial necessity of the payment, but it was not entitled to insist on proof that the representative had in fact disbursed the money to individual recipients. The earlier ruling concerning the representative's own exemption under section 4(3)(vi) supported the view that the payment was made for a business purpose and that the two provisions operated in a complementary manner.

Conclusion: The deduction was allowable, and the question was answered in the affirmative in favour of the assessee.

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