Commercial expediency test for business deduction failed where payment was treated as a voluntary reward for past services.

A payment to managing agents is deductible only if it is laid out wholly and exclusively for the purposes of business and is not capital or personal in nature. The governing test is commercial expediency, applied on the facts of each case. On the material considered, the payment was treated as a voluntary reward for past services and sacrifices, and the assessee did not show that it was made to secure future business benefit, facilitate operations, or discharge any legal liability. The amount was therefore not allowable as a deduction under section 10(2)(xv) or section 10(1) of the Indian Income-tax Act, 1922.

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Issues: Whether the sum of Rs. 60,000 paid by the assessee-company to its managing agents was an allowable deduction under section 10(2)(xv) or section 10(1) of the Indian Income-tax Act, 1922.

Analysis: A deduction under section 10(2)(xv) requires the expenditure to be laid out wholly and exclusively for the purpose of business and not to be capital or personal in nature. The governing test is whether the payment was made on grounds of commercial expediency and to facilitate the business, and the application of that test depends on the facts of each case. On the material before the income-tax authorities, the payment was treated as a voluntary reward for past services and sacrifices. The assessee had not established before the lower authorities that the payment was necessary to secure any special future incentive or to facilitate its business, nor that it was made in discharge of any legal liability.

Conclusion: The payment was not allowable as a deduction under section 10(2)(xv) or section 10(1) of the Indian Income-tax Act, 1922, and the disallowance was upheld.

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