Commercial expediency allows deduction of termination payment made to ensure smooth business transition and continuity.

An expenditure paid to a terminated agent was held deductible as business expenditure where it was incurred on grounds of commercial expediency and bore a real nexus with the smooth conduct of business. The payment followed termination of the agency, aligned with an earlier practice of similar termination payments, and facilitated the transition from agency distribution to direct distribution. The court treated it as reasonable business outlay made to ensure continuity and convenience in operations, not as a bounty or extraneous payment. The deduction was therefore allowed under the business expenditure provision.

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Issues: Whether the amount paid to the terminated agent was deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922 on the ground of commercial expediency.

Analysis: The payment was made after termination of the agency and was supported by an earlier practice of paying a similar amount on termination of another agency. The transition from agency distribution to direct distribution required the assessee to ensure smooth continuation of business, and the payment was found to be reasonable and connected with business convenience rather than bounty or extraneous considerations. The governing test was whether the expenditure was voluntarily incurred on grounds of commercial expediency and to indirectly facilitate the carrying on of business.

Conclusion: The amount was allowable as a deductible business expenditure and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: An expenditure incurred on commercial expediency to facilitate the carrying on of business, even if not resulting in immediate profit, is allowable as business deduction if it bears a real nexus with the smooth conduct or transition of the business and is not in the nature of a bounty.

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