Remuneration paid under an agreed profit-share-or-salary alternative is allowable as business expense when paid commercially.

Where an employee had an agreement entitling him to either a one third profit share or a fixed salary and the employee validly elected the fixed salary, the Court applied the principle that remuneration paid pursuant to commercial arrangements is allowable as expenditure wholly and exclusively for business; the taxing authority cannot impose a subjective reasonableness test to disallow such remuneration absent cogent, rational grounds. Outcome: the Tribunal lacked materials to disallow the entire salary and the assessee's claim for the salary was held allowable.

---

---

Issues: Whether there were materials for the Tribunal to hold that the whole of the claim of salary paid to the manager did not represent expenditure laid out or expended wholly or exclusively for the purpose of business.

Analysis: The Court reviewed the factual finding that the manager had an agreement entitling him either to one-third of profits or to a suitable fixed salary, and that for the relevant year the manager elected the alternative mode and was paid a fixed salary. The Court applied the established principle that remuneration paid out of commercial considerations is allowable as business expenditure and that a taxing authority cannot substitute a subjective standard of reasonableness to disallow remuneration unless there are cogent and rational grounds. The Tribunal's reliance on prior years' practice of calculating remuneration as one-third of profits was held not to furnish such cogent grounds where the employee had validly claimed and received a fixed salary under the terms of employment.

Conclusion: The question is answered in the negative; there were not materials for the Tribunal to hold that the whole salary did not represent expenditure wholly or exclusively for the purpose of business, and the assessee's claim for the salary is allowable.

Ratio Decidendi: Where an employee is entitled by agreement to an alternative of profit share or a fixed salary and the fixed salary is paid as a commercial arrangement, the remuneration so paid is allowable as expenditure wholly and exclusively for the purpose of business unless the taxing authority points to cogent, rational grounds to disallow it.

---