Business income and profit-sharing payments: managers acting for the proprietor do not convert contractual profit division into deductible expenditure.

Where managers conduct a proprietor's stevedoring and dubashing business in the proprietor's name and for his benefit, the business remains that of the proprietor for income-tax purposes, so the full profits are assessable as business income in his hands. A contractual amount retained by the managers out of those profits is not deductible merely because it is described as bonus or commission; if it is payable only after profits arise, it is treated as an application or division of profits, not expenditure incurred solely to earn them. The claimed deduction therefore fails under the business allowance provisions.

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Issues: (i) Whether the assessee was carrying on the stevedoring and dubashing business through the managers so that the full profits of the business were assessable in his hands under the head "Business"; (ii) Whether the amounts retained by the managers under the agreement were allowable as deduction as bonus, commission, or expenditure incurred solely for earning the profits.

Issue (i): Whether the assessee was carrying on the stevedoring and dubashing business through the managers so that the full profits of the business were assessable in his hands under the head "Business".

Analysis: The agreement showed that the managers were appointed only to conduct the proprietor's business for a fixed term, in the proprietor's name and for his benefit. The business remained that of the proprietor throughout, and the managers were merely agents or managers acting on his behalf. On that footing, the profits of the business were the profits of a business carried on by the assessee within the meaning of the charging provision for business income.

Conclusion: Yes. The business was carried on by the assessee through his managers, and the full business profits were assessable in his hands.

Issue (ii): Whether the amounts retained by the managers under the agreement were allowable as deduction as bonus, commission, or expenditure incurred solely for earning the profits.

Analysis: The balance retained by the managers was not a deductible allowance. It was not shown to be bonus or commission within the statutory allowance, and in any event it was payable under the agreement out of the profits after they had arisen. Such a payment represented an application or division of profits, not expenditure incurred to earn them. The deduction claimed therefore did not fall within the relevant allowance provisions.

Conclusion: No. The claimed deduction was not allowable under the business deduction provisions.

Final Conclusion: The reference was answered against the assessee and the assessment on the full profits of the business was upheld.

Ratio Decidendi: Where a business is carried on by managers as agents on behalf of the proprietor, the business remains that of the proprietor for income-tax purposes, and any contractual sharing of the resulting profits is not deductible as expenditure incurred to earn those profits.

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