Business deduction for managing agency commission allowed in full against aggregate profits despite erroneous branch-wise accounting split.

Commission payable under the managing agency agreement was deductible in full against the aggregate Indian business profits because section 10(2)(xv) requires the expense to be laid out wholly and exclusively for the business. Where an assessee carries on one business through several branches, profits and losses must be pooled, and deduction is not defeated by an erroneous branch-wise allocation in the accounts. The agreement showed that the commission was payable on the annual net profits of the entire business, not on branch-specific profits, so the whole amount was allowable as a business deduction.

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Issues: Whether the managing agency commission of Rs. 1,23,719, attributed to the Karachi branch in the assessee's accounts, was allowable as a deduction against the Indian profits.

Analysis: The statutory test under section 10(2)(xv) is whether the expenditure was laid out wholly and exclusively for the purpose of the business. Where the assessee carries on one business at several places, the profits and losses of all branches must be pooled together and the business expenses deducted from the aggregate. The place where the assessee's accounts allocated a part of the commission was not ative, because entitlement to deduction depends on the law and the terms of the managing agency agreement, not on an erroneous accounting split. On those terms, commission was payable on the annual net profits of the entire business and not on branch-wise profits.

Conclusion: The whole commission was deductible against the Indian profits, and the assessee succeeded on the issue.

Final Conclusion: The appeal failed and the assessment position in favour of the assessee was upheld.

Ratio Decidendi: For computing business profits under section 10(2)(xv), expenditure incurred for the common business is deductible in full against the aggregate profits of the entire business, regardless of an erroneous branch-wise allocation in the accounts.

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