Commercial expediency test governs deductibility of genuine business payments, including interest substitutes and sales commission.

Expenditure incurred on grounds of commercial expediency and for the purpose of carrying on business is deductible where it is genuine and supported by the accounts. Payments made to financiers in lieu of interest were held allowable because they were connected with business borrowing, and the absence of a written agreement did not by itself negate the arrangement. Commission paid to an employee for managing sales was also deductible because it operated as a business incentive and was evidenced in the books. The revenue could not disallow either payment merely on the view that a smaller or more prudent amount would have sufficed, since the test remains the businessman's perspective, not the tax authority's.

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Issues: (i) Whether the amount paid to the two financiers in lieu of interest was deductible as business expenditure. (ii) Whether the commission paid to the employee on sales was deductible as business expenditure.

Issue (i): Whether the amount paid to the two financiers in lieu of interest was deductible as business expenditure.

Analysis: The payment was made in connection with money borrowed for the business and was supported by the books of account. The absence of a written agreement did not by itself make the arrangement unreal. The test was whether the expenditure was incurred voluntarily on grounds of commercial expediency and wholly and exclusively for the purpose of the business, viewed from the standpoint of the businessman and not the revenue. The Tribunal was not justified in substituting its own view of prudence for the assessee's business decision.

Conclusion: The amount paid to the financiers was allowable as deductible business expenditure and the disallowance was not justified, in favour of the assessee.

Issue (ii): Whether the commission paid to the employee on sales was deductible as business expenditure.

Analysis: The employee was managing the Cuttack business and the commission was paid as an incentive to improve sales and efficient management. The arrangement was evidenced by the accounts, and the absence of a written agreement was not decisive. Once the expenditure was found to be genuine and connected with the business, the authorities could not reduce it merely because they thought a smaller amount would have been sufficient. The proper test remained commercial expediency from the assessee's point of view.

Conclusion: The full commission payment was allowable as business expenditure and the disallowance was not justified, in favour of the assessee.

Final Conclusion: The reference was answered wholly in favour of the assessee, and both disputed payments were held deductible in computing business income.

Ratio Decidendi: Expenditure incurred voluntarily on grounds of commercial expediency and for the purpose of facilitating the business is deductible if it is genuine and incurred from the businessman's point of view, and the revenue cannot disallow it merely because a smaller amount might have been more prudent.

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