Fresh statutory declaration required each assessment year for tax exemption; business deduction failed for lack of exclusive business purpose

A statutory declaration filed for one assessment year under Section 12A of the Income-tax Act, 1922 did not continue automatically for later years; exemption had to be supported by a fresh declaration each year because the assessment was treated as self-contained. The claim for deduction under Section 10(2)(xv) also failed on the facts, as the Tribunal found that the assessee had not shown the outgoing to be wholly and exclusively incurred for business purposes. On that issue, the finding was treated as one of evidence and no question of law arose.

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Issues: (i) Whether a declaration filed under Section 12A of the Income-tax Act, 1922 for one assessment year could operate for subsequent assessment years without a fresh declaration. (ii) Whether the amount shared with other parties could be allowed as a deduction under Section 10(2)(xv) of the Income-tax Act, 1922.

Issue (i): Whether a declaration filed under Section 12A of the Income-tax Act, 1922 for one assessment year could operate for subsequent assessment years without a fresh declaration.

Analysis: The scheme of Section 12A required the assessee and the sharers to file a declaration showing the proportion in which the managing agency commission was shared, and the Income-tax Officer had to be satisfied of the facts stated in that declaration before the exemption could be granted. The assessment for each year was treated as self-contained. A declaration once filed and acted upon for one year did not automatically continue for later years, because the assessee had to satisfy the statutory requirements each time exemption was claimed. Support for this approach was drawn from the construction placed on Section 43, where notice for treating a person as an agent had been held necessary for each assessment year.

Conclusion: A fresh declaration was required for each assessment year, and the earlier declaration did not endure for subsequent years.

Issue (ii): Whether the amount shared with other parties could be allowed as a deduction under Section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The claim under Section 10(2)(xv) depended on proof that the expenditure or outgoing was incurred wholly and exclusively for the purposes of the assessee's business. Mere proof that the commission was shared for consideration was not enough. On the materials before the Tribunal, the agreement only established the terms on which the commission was shared, and the question turned on appreciation of evidence. The Tribunal therefore held that no question of law arose on this point.

Conclusion: The claim under Section 10(2)(xv) was not established, and no question of law arose from the Tribunal's finding.

Final Conclusion: The reference was answered against the assessee on the principal issue, the motion for an additional question was rejected in substance, and the Revenue's stand was upheld.

Ratio Decidendi: Where a tax exemption depends on filing a statutory declaration before assessment is completed, the declaration must be renewed for each assessment year unless the statute clearly provides otherwise; a deduction claimed as business expenditure must be shown to be wholly and exclusively incurred for business purposes.

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