Business expenditure deduction turns on commercial expediency, while remuneration cannot be disallowed absent evidence of extraneous considerations.

Business expenditure is deductible where it is laid out wholly and exclusively for business purposes, and tax authorities cannot replace commercial judgment on remuneration merely because they view it as excessive. On the facts discussed, salary paid to a manager of a large and risky cashew business was treated as a legitimate business expense because no material showed extraneous considerations. The discussion also notes that a disallowance of part of the bonus claim and an addition for purchase inflation were treated as factual matters, with no question of law arising to justify interference in reference jurisdiction.

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Issues: (i) Whether the disallowance of salary paid to the manager was justified under section 10(2)(xv) of the Indian Income-tax Act, 1922; (ii) Whether the disallowance of a part of the bonus claim and the addition on account of purchase inflation were sustainable.

Issue (i): Whether the disallowance of salary paid to the manager was justified under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The governing test is whether the expenditure was laid out wholly and exclusively for the purposes of the business. The Tribunal cannot substitute its own view of what remuneration ought to have been paid unless there is material showing that the payment was made for extraneous considerations. Comparisons with salaries paid in other concerns are not conclusive. On the facts, the manager was entrusted with the running of a large and risky cashew business, and no material established that the salary was fixed for reasons other than business considerations.

Conclusion: The salary disallowance was not justified and the claim ought to have been allowed; this issue is answered in favour of the assessee.

Issue (ii): Whether the disallowance of a part of the bonus claim and the addition on account of purchase inflation were sustainable.

Analysis: In relation to the bonus disallowance, the Court held that no question of law arose on the portion disallowed. As to the purchase inflation addition, the finding of the Tribunal was treated as essentially factual, and no ground was shown to disturb it in reference jurisdiction.

Conclusion: The bonus disallowance and the addition on account of purchase inflation were upheld and this issue is answered against the assessee.

Final Conclusion: The reference was disposed of by granting relief on the salary deduction claim while sustaining the remaining disallowance and the addition challenged by the assessee.

Ratio Decidendi: A business expenditure cannot be disallowed merely because the tax authorities consider the remuneration excessive; unless there is material showing that the payment was made for extraneous or non-business considerations, the businessman's judgment as to the amount payable must be respected.

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