Employee commission deduction depends on commercial justification, and reference procedure lets the High Court frame the legal questions.

Commission paid to employees was deductible only if, on a factual appraisal of the business circumstances, it was shown to have been laid out wholly and exclusively for business purposes; agreement and actual payment alone were insufficient, so the deduction was disallowed. Because the amount had already been disallowed under the income-tax law, no separate permission was needed under the excess profits tax provisions. On the reference procedure, the High Court was entitled to identify the questions of law arising from the Tribunal's order, and the Tribunal then had to frame the connected statement of case; the procedural objection therefore failed.

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Issues: (i) Whether commission paid to employees was an allowable deduction as expenditure laid out wholly and exclusively for the purposes of the business under the income-tax law. (ii) Whether the disallowance, once made under the income-tax law, required separate permission under the excess profits tax provisions. (iii) What was the proper procedure under the reference provisions when the High Court required the Tribunal to state a case.

Issue (i): Whether commission paid to employees was an allowable deduction as expenditure laid out wholly and exclusively for the purposes of the business under the income-tax law.

Analysis: The allowance of remuneration is not determined merely by the existence of an agreement or by actual payment. The taxing authority may examine whether the payment was made wholly and exclusively for business purposes, having regard to the nature of the business, the services rendered, the relationship of the parties, and whether the amount is grossly disproportionate to the work done. The question is one of fact, and if the evidence supports the inference that the payment was not commercially justified, the deduction may be disallowed in whole or in part.

Conclusion: The deduction was rightly disallowed, and the finding was against the assessee.

Issue (ii): Whether the disallowance, once made under the income-tax law, required separate permission under the excess profits tax provisions.

Analysis: The excess profits tax machinery allowed a wider power of disallowance, but that question arose only where a deduction survived under the income-tax law. Since the item had already been disallowed under the income-tax law itself, there was no occasion to invoke the separate consent requirement under the excess profits tax rule.

Conclusion: No separate permission was required, and the contention was against the assessee.

Issue (iii): What was the proper procedure under the reference provisions when the High Court required the Tribunal to state a case.

Analysis: When the Tribunal has declined to refer a question, the High Court is to indicate the questions of law arising from the Tribunal's order, and the Tribunal's function is to frame a proper statement of case germane to those questions. The High Court may then answer the questions as framed or reframe them if necessary.

Conclusion: The procedure was clarified in favour of the High Court's power to identify the questions of law, and the assessee's procedural objection failed.

Final Conclusion: The reference was answered against the assessee on all material issues, with the disallowance of the commission expenditure maintained and the procedural point decided only to clarify the reference process.

Ratio Decidendi: A payment to employees is deductible only if it is shown, on a factual appraisal of all relevant circumstances, to have been incurred wholly and exclusively for the business; agreement and actual payment alone are insufficient, and the reference procedure requires the High Court to indicate the questions of law while the Tribunal frames the connected statement of case.

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