Business deduction tests require proof of purpose, commercial necessity, and reasonable employee commission under the tax law.

Deductibility of payments to directors, salesmen and employees depended on strict proof that the expenditure was laid out wholly and exclusively for business purposes and was commercially necessary; bare resolutions or unsupported assertions were insufficient where the underlying purpose and actual spending were not established. Commission to employees was deductible only if paid for services rendered and shown to be reasonable having regard to pay, service conditions, business profits and established trade practice. Excessive commission, absence of prior contractual entitlement, late-year payment and lack of supporting industry practice weighed against deduction. The claimed deductions were therefore disallowed on the stated statutory tests.

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Issues: (i) Whether payments made to the directors and four salesmen were allowable as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. (ii) Whether the commission paid to two employees was allowable under section 10(2)(x) of the Income-tax Act, 1922.

Issue (i): Whether payments made to the directors and four salesmen were allowable as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: To qualify under section 10(2)(xv), the assessee had to establish that the expenditure was laid out wholly and exclusively for the purpose of business. Mere existence of resolutions describing the object of payment was not enough where the assessee failed to furnish particulars showing that the amounts were in fact spent for the stated business purpose. The department was entitled to satisfy itself about the commercial necessity of the expenditure, and the absence of supporting details prevented acceptance of the claim. The cited authorities on secret commission and contingency expenses did not help the assessee because, on the facts, the purpose itself was not proved.

Conclusion: The deduction was not allowable and the issue was decided against the assessee.

Issue (ii): Whether the commission paid to two employees was allowable under section 10(2)(x) of the Income-tax Act, 1922.

Analysis: Section 10(2)(x) permitted deduction only where bonus or commission was paid for services rendered and the amount was reasonable having regard to the employee's pay, conditions of service, the profits of the business, and the general practice in similar businesses. The commission paid was far higher than the regular emoluments, there was no prior contractual arrangement making such commission part of remuneration, the payments were made late in the year, and no trade practice supporting such a level of commission was shown. These features showed that the statutory conditions were not met.

Conclusion: The deduction was not allowable and the issue was decided against the assessee.

Final Conclusion: The reference failed, and the Court upheld the disallowance of the claimed deductions in full.

Ratio Decidendi: For deduction under section 10(2)(xv), the assessee must prove the business purpose and commercial necessity of the expenditure; for deduction under section 10(2)(x), commission must be reasonable in light of the employee's pay, service conditions, profits, and established trade practice.

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