Business expenditure deduction upheld for sole selling commission supported by genuine services, despite Companies Act non-compliance.

Sole selling agency commission was considered deductible where it was paid under a genuine business agreement and supported by actual commercial services. The absence of prior approval under section 294AA of the Companies Act, 1956 was not treated as decisive for income-tax deduction, because allowability under tax law is determined by the income-tax provisions and not by a mere breach of another statute. On the facts, the agents rendered services, incurred expenses and assisted recovery, and the rise in turnover supported business purpose. The commission was therefore treated as allowable business expenditure and the disallowance as unsustainable.

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Issues: (i) Whether sole selling agency commission paid under an agreement could be disallowed merely because prior approval required under section 294AA of the Companies Act, 1956 was not obtained; (ii) whether the commission was an allowable business expenditure on the facts of the case.

Issue (i): Whether sole selling agency commission paid under an agreement could be disallowed merely because prior approval required under section 294AA of the Companies Act, 1956 was not obtained.

Analysis: The disallowance was examined on the footing that the payment offended the Companies Act. The decision proceeded on the principle that, for allowing a deduction under the income-tax law, the enquiry must remain confined to the income-tax provisions and an expenditure actually incurred for business cannot be denied merely because it may be unauthorised or prohibited under another statute. The absence of prior approval under the Companies Act was therefore not treated as decisive against deduction.

Conclusion: The commission could not be disallowed solely on the ground of non-compliance with section 294AA of the Companies Act, 1956.

Issue (ii): Whether the commission was an allowable business expenditure on the facts of the case.

Analysis: The payment was made under a genuine agreement, the services contemplated by the arrangement were not doubted, and the agents were required to attend to sales, bear certain expenses, and assist in recovery. The record also showed a substantial increase in turnover after their appointment. On these facts, the expenditure was treated as having been incurred for business purposes and as supported by actual commercial services.

Conclusion: The commission was allowable as business expenditure.

Final Conclusion: The disallowance was unsustainable and the assessee was entitled to the deduction.

Ratio Decidendi: An expenditure actually incurred for business and supported by genuine services cannot be denied as a deduction merely because it may contravene another statute, where the income-tax law itself does not prohibit the allowance.

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