Profit-linked remuneration deductible when paid for services rendered, not as a mere sharing of profits.

A payment calculated by reference to profits was deductible where its true character was remuneration for services rendered, not a mere distribution of profits. The court noted that the adverse factual finding that the sum had not been paid was unsupported, because the record included the employee's statement, a receipt and the assessee's books, while the Tribunal's reliance on missing account books and absent interim commissions was irrelevant to actual payment. The amount was therefore treated as an admissible business deduction under the Income-tax Act, 1922, and the disallowance was not sustainable.

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Issues: (i) Whether the finding that the sum of Rs. 8,649 was not paid to the employee was supported by material; (ii) Whether, on the facts found, the amount paid as profit-linked remuneration was deductible under the Income-tax Act, 1922.

Issue (i): Whether the finding that the sum of Rs. 8,649 was not paid to the employee was supported by material.

Analysis: The Tribunal relied on the non-production of account books by the employee and the absence of interim commission payments. Those circumstances had no proximate connection with the question whether the payment was actually made. The record contained the employee's statement recorded under Section 37 of the Income-tax Act, 1922, a receipt for the amount, and the assessee's books showing the payment. The reasons adopted by the Tribunal were therefore irrelevant to the factual issue.

Conclusion: The adverse finding on payment was unsupported by material and was not justified in law.

Issue (ii): Whether, on the facts found, the amount paid as profit-linked remuneration was deductible under the Income-tax Act, 1922.

Analysis: The payment was held to be remuneration for services rendered by the chief manager, calculated with reference to profits, and not a mere division of profits simpliciter. Such a payment was deductible as an allowance under Section 10(2)(xv) of the Income-tax Act, 1922, and was also within the principle governing commission paid to an employee for services rendered. The authorities treating a pure sharing of profits as non-deductible were distinguished on the footing that the present arrangement was compensation for business services.

Conclusion: The amount of Rs. 8,649 was an admissible deduction and the disallowance was not sustainable.

Final Conclusion: The reference was answered in favour of the assessee, and the disallowance of the disputed amount was set aside as not warranted by law.

Ratio Decidendi: A payment calculated with reference to profits is deductible when, on its true character, it is remuneration for services rendered and not a mere distribution of profits.

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