Business expenditure deduction fails where salaries to coparceners lack commercial expediency and no service nexus is shown.

Deductibility of salaries paid to coparceners under section 10(2)(xv) depended on whether the payments were incurred on commercial expediency and wholly and exclusively for business purposes. An agreement or actual payment alone did not satisfy the statutory test; the income-tax authorities could assess the relationship of the payees, the quantum, the nature of the business and the services rendered. On the findings recorded, the coparceners rendered no service to the partnership business and there was no nexus between the payments and the profits of the Hindu undivided family, so the deduction was disallowed.

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Issues: Whether the assessee was entitled to deduct the salaries paid to its coparceners as expenditure laid out wholly and exclusively for the purposes of business under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: Deductibility under section 10(2)(xv) depends on whether the expenditure was incurred on commercial expediency and wholly and exclusively for the purposes of earning business profits. The existence of an agreement or actual payment does not by itself establish that the payment satisfies the statutory test. The question is primarily one of fact for the income-tax authorities, who may consider the relationship of the payee to the assessee, the quantum of payment, the nature of the business, and the services actually rendered. On the findings recorded, the two coparceners did not render service to the partnership business and there was no nexus between the payments and the profits derived by the Hindu undivided family.

Conclusion: The assessee was not entitled to the deduction claimed, and the answer to the question was against the assessee and in favour of the Revenue.

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