Commercial expediency governs deductibility of commission under a subsisting agency agreement, despite controlled sales conditions.

Commission paid under a subsisting agency agreement was treated as business expenditure allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, even where the commission related to controlled sugar sales. The agreement remained operative, the agent was contractually entitled to payment, and the introduction of government control did not by itself make the outlay commercially unreasonable or extraneous to the business. The governing test was commercial expediency from the businessman's perspective, not the revenue's view of whether the agency should have been terminated. Once the contractual liability and payment were established, the expenditure was regarded as incurred wholly and exclusively for business purposes.

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Issues: Whether commission paid to a selling agent under an existing agency agreement, including commission relatable to controlled sugar sales, was expenditure incurred wholly and exclusively for the purposes of the assessee-company's business under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The agreement remained valid and operative, and the agent was contractually entitled to commission so long as the agreement subsisted. The fact that government control on sugar sales had been introduced did not, by itself, make continued payment of commission commercially unreasonable or show that the expenditure was not for business purposes. The test is one of commercial expediency viewed from the standpoint of the businessman, not the revenue authorities. The Tribunal's view that the assessee ought to have terminated the agency was not a sound basis for disallowance, because the assessee was entitled to decide how to manage its business affairs and the burden under section 10(2)(xv) was discharged once the contractual liability and payment were established.

Conclusion: The commission was held to be expenditure laid out wholly and exclusively for the purposes of the assessee-company's business, and the answer to the reference was in the assessee's favour.

Ratio Decidendi: Where a genuine and subsisting trading agreement obliges payment of commission, the expenditure is allowable if it is incurred on grounds of commercial expediency and is not shown to be extraneous to the business, even if the revenue considers the arrangement unnecessary.

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