Commission payments to dock workers not disallowable where incurred on behalf of clients and not shown to be prohibited.

Commission or incentive payments made to dock workers on behalf of clients were held not to be disallowable under the Explanation to section 37(1), because the expenditure was incurred for the clients and did not constitute the assessee's own expenditure. Merely routing the amounts through the profit and loss account was not decisive of the true character of the payment. The claimed purpose of incentivising speedy loading and unloading was not disproved, and no legal prohibition on such payments was shown. The disallowance was therefore unsustainable and was to be deleted.

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Issues: Whether commission or incentive payments made to dock workers on behalf of clients were disallowable under the Explanation to section 37(1) of the Income-tax Act, 1961.

Analysis: The expenditure was found to have been incurred on behalf of the assessee's clients and, therefore, did not constitute the assessee's own expenditure. Routing the amounts through the profit and loss account was held not to be decisive of the true nature of the payment. The claim that the amounts were paid as incentive for speedy loading and unloading was not disproved, and no law prohibiting such payments was shown.

Conclusion: The disallowance was not sustainable and was directed to be deleted in favour of the assessee.

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