Business expenditure deduction: reimbursement of actual agency was held allowable under section 37(1) for tax purposes.

Actual expenditure incurred by an agency on behalf of an assessee was treated as deductible business expenditure where the assessee remained legally bound to reimburse the amount. The commission claim itself had been disallowed, but the liability to repay the agency for business-related outgoings was held to be an allowable deduction under section 37(1) of the Income-tax Act, 1961. The legal effect was that expenditure incurred under a business liability, even if routed through an agent, qualifies as an admissible deduction when it is incurred wholly for business purposes.

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Issues: Whether the amount of Rs. 33,809, being the actual expenditure incurred by the agency on behalf of the assessee, was an admissible deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The amount in dispute represented actual expenses incurred by the agency. Although the commission claim itself had been disallowed, the assessee remained legally bound to reimburse the agency for the expenditure actually incurred. A liability incurred under law for business purposes is deductible as business expenditure.

Conclusion: The amount was an allowable business deduction under section 37(1) of the Income-tax Act, 1961 and the question was answered in the affirmative, against the revenue and in favour of the assessee.

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