Managing agency commission paid to a nominee remained assessable income, while the related direct payment was deductible as business expenditure.

Income is attributable to the person legally entitled to receive it, even where managing agency commission is paid directly to that person's nominee at the assessee's direction. On that basis, the commission remained income of the assessee firm. The corresponding payment was also treated as expenditure actually incurred for business purposes, because the nominee performed the managing agency work on the assessee's behalf and the direct payment reflected an implied business arrangement. The absence of a formal written agreement did not defeat deductibility under section 10(2)(xv).

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Issues: (i) Whether the managing agency commission paid directly to the managing agent's nominee was income in the hands of the assessee firm; (ii) whether the sum so paid was deductible as expenditure laid out under section 10(2)(xv).

Issue (i): Whether the managing agency commission paid directly to the managing agent's nominee was income in the hands of the assessee firm.

Analysis: The assessee was entitled under the articles of association to receive the managing agency remuneration. The amount was paid directly to the nominee only pursuant to the assessee's direction. Physical receipt by the nominee did not alter the character of the amount as remuneration belonging to the assessee.

Conclusion: The sum of Rs. 12,000 was income in the hands of the assessee.

Issue (ii): Whether the sum so paid was deductible as expenditure laid out under section 10(2)(xv).

Analysis: The nominee performed the managing agency work on behalf of the assessee and was entitled to remuneration. The payment made directly to him by the company, on the assessee's direction, was treated as expenditure actually incurred by the assessee within the meaning of the provision. The absence of a formal written agreement did not prevent recognition of an implied understanding.

Conclusion: The sum of Rs. 12,000 was allowable as deductible expenditure.

Final Conclusion: The receipt was assessable as the assessee's income, but the corresponding payment was deductible as business expenditure, so the reference was answered partly against the assessee and partly in its favour.

Ratio Decidendi: Income remains attributable to the person legally entitled to receive it, even if paid at that person's direction to another, and a payment directed to a person performing the assessee's business obligations may constitute expenditure actually incurred for deduction purposes.

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