Actual expenditure test controls deduction where waived commission was never incurred during the accounting year.

A deduction for managing agency remuneration was disallowed because the assessee-company had not actually incurred the expenditure during the relevant accounting year. The High Court held that business expenditure is deductible only where the liability has arisen and remained payable in that year; a later or earlier waiver does not create an allowable deduction if no subsisting obligation or payment existed during the period. On those facts, the commission was never paid during the year and had been waived by the managing agent, so the deduction claim failed.

---

---

Issues: Whether the assessee-company was entitled to deduction of the managing agency remuneration of Rs. 55,359 for the relevant previous year.

Analysis: The managing agent had waived the commission and the amount was never paid during the accounting period. The Court treated the relevant enquiry as one of actual expenditure incurred by the assessee in the year, and held that a deduction could be claimed only if the liability had in fact arisen and remained payable during that year. Since the assessee-company had not incurred any expenditure towards the commission during the previous year, the later or earlier timing of the waiver did not alter the position.

Conclusion: The assessee-company was not entitled to deduct Rs. 55,359 as managing agency remuneration, and the answer to the issue was against the assessee.

Ratio Decidendi: A deduction for business expenditure is allowable only to the extent of expenditure actually incurred during the relevant accounting year; where the liability is waived and no payment or subsisting obligation exists in that year, no deduction can be claimed.

---