Retrospective depreciation amendment made excess managing-agent remuneration non-deductible as business expenditure under the governing agreement.

A retrospective amendment to the depreciation rule had to be applied as if it were always in force, so the managing agents' remuneration, computed on the earlier basis, became excessive and fell outside the contractual liability. That excess was not expenditure laid out wholly and exclusively for business and was therefore not deductible. The provision dealing with later recovery of amounts earlier allowed as deductions applied only where a sum had been lawfully allowed in assessment and subsequently recovered, not to a mistaken overpayment or incorrect computation. The reference was answered against the assessee and in favour of the Revenue.

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Issues: Whether the excess remuneration paid to the managing agents, computed on the basis of the unamended depreciation rule but rendered excessive by a retrospective amendment, was deductible as business expenditure, and whether the payment could be saved by the provision relating to subsequent recovery of amounts earlier allowed as deductions.

Analysis: The remuneration payable under the managing agency agreement was linked to net profits computed in accordance with the statutory depreciation provisions. Once the depreciation rule was amended retrospectively with effect from an earlier date, the amended rule had to be treated as having been in force from that date, and the assessee's original computation became incorrect. The resulting excess payment was beyond the contractual liability and could not be treated as expenditure laid out wholly and exclusively for the purposes of business. The provision dealing with later recovery of amounts earlier allowed as deductions applied only to amounts lawfully allowed in assessment and subsequently recovered, and not to a mistaken overpayment or incorrect computation.

Conclusion: The excess sum was not an allowable deduction, and the reference was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A retrospective statutory amendment must be applied as though it had always been in force, and any payment in excess of the liability fixed by the governing agreement and the amended law is not deductible as business expenditure; the provision for subsequent recovery of earlier-allowed deductions does not cover mistaken overpayments.

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