Commercial expediency allows managing agent expenses linked to business profit, but unrelated outlays remain disallowed.

Business expenditure is allowable where it is incurred on grounds of commercial expediency and in accordance with ordinary commercial practice, even if it also benefits another person. On that test, the Rs. 4,800 item was disallowed because no nexus with the assessee's business was shown during the relevant year. The brokerage of Rs. 12,785 and travelling allowance of Rs. 1,500 were treated as allowable, because they were connected with the managed company's expansion and procurement activities, and the assessee's remuneration depended on the managed company's profits. The fact that those expenses might have been capital in the managed company's hands did not make them capital expenditure for the assessee.

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Issues: Whether the Tribunal was right in disallowing the three items of expenditure of Rs. 4,800, Rs. 12,785 and Rs. 1,500 as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The governing test is commercial expediency and ordinary commercial practice. Expenditure incurred to facilitate the assessee's business, or to promote the business from which the assessee earns commission, may be allowable even if it also benefits another person and even if it is not strictly necessary. The payment of Rs. 4,800 was incurred within the relevant accounting year, but no nexus with the assessee's business was established because there was no evidence that the recipient participated in promoting sales during that year. By contrast, the brokerage of Rs. 12,785 and the travelling allowance of Rs. 1,500 were incurred in connection with the managed company's expansion and procurement activities. Since the assessee's remuneration depended on the managed company's profits, those expenses had a direct commercial connection with the assessee's business as managing agents. The fact that the expenses may have been capital in nature in the hands of the managed company did not make them capital expenditure for the assessee.

Conclusion: The disallowance of Rs. 4,800 was upheld, but the disallowance of Rs. 12,785 and Rs. 1,500 was set aside as the latter two items were allowable business expenditure.

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