I gave up part of the commission my firm had already earned to help the company I manage stay afloat. Can I still claim the amount given up as a business deduction?
Yes. The Supreme Court held that a managing agent who voluntarily gave up Rs 2,09,114 of accrued commission at the managed company's request could deduct it under section 10(2)(xv) of the 1922 Act (now section 37(1)). The Tribunal had found the amount was given up on grounds of commercial expediency, not as a bounty, and that a stronger managed company meant larger commission for the agent later. That finding was one of fact, supported by evidence, so neither the High Court nor the Supreme Court could disturb it.
Decided by the Supreme Court (Supreme Court of India — Gajendragadkar J, Sarkar J and Subba Rao J (judgment of the Court delivered by Kapur J as printed in the report)) on 1960-02-17, reported as 1960 AIR 738; 1960 SCR (3) 130; (1960) 38 ITR 601; 1960 SCJ 1258. It bears on section 37(1) of the Income Tax Act 1961, in Deductions & Disallowances matters.
This is the case that settles two things at once. First, expenditure need not produce a direct and immediate benefit to the assessee's own trade; a voluntary payment made on grounds of commercial expediency, indirectly facilitating the business, still qualifies. That a third party also benefits is immaterial. Second, and just as useful in practice, whether a sum was laid out wholly and exclusively for the business is a question of fact for the Tribunal, and a finding supported by evidence cannot be reopened in reference or appeal. The judgment also draws the boundary: expenditure to foster only another's business, a distribution of profits, a wholly gratuitous payment, or one for an improper or oblique purpose, stays disallowed. It remains the standard citation for commercial expediency in section 37(1) disputes.
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The assessee firm was managing agent of Keshav Mills Ltd, Petlad, under a 1935 agreement entitling it to commission on sales and on ginning, pressing, dyeing and labour bills. For the accounting year 1950 the commission worked out to Rs 3,09,114. During that year, at the oral request of the managed company's Board, the agent agreed to accept only Rs 1,00,000 and gave up the balance of Rs 2,09,114. The Income-tax Officer and the Appellate Assistant Commissioner taxed the whole Rs 3,09,114 as accrued commission. The Tribunal agreed the whole amount had accrued but allowed the sum given up as expenditure under section 10(2)(xv) of the Indian Income-tax Act 1922. In a supplementary statement it found the managed company's balance sheet was weak, the agent had waived commission in earlier bad years, the remission was bona fide with no oblique motive, and the two businesses were linked so that a stronger managed company meant larger commission in future. The Bombay High Court treated this as a finding of fact and answered in the assessee's favour. The Revenue appealed by special leave.
The appeal was dismissed with costs. The Tribunal's conclusion that the Rs 2,09,114 was laid out wholly and exclusively for the purpose of the assessee's business was a finding of fact; there was evidence to support it, so it could not be interfered with. On that finding the amount was a deductible expense under section 10(2)(xv). The Court accepted that the sum was given up for reasons of commercial expediency and not as a bounty to the managed company, and that the agent stood to benefit because a financially sounder managed company would yield it larger commission in future. Voluntariness was no bar: so long as the sum is given up for the assessee's own business benefit, the deduction is claimable.
The Court worked through the authorities rather than laying down a new rule. Tata Sons showed that a managing agent's voluntary contribution to the managed company's bonus was deductible because, on ordinary commercial principles, it raised the managed company's profits and so the agent's commission. Union Cold Storage failed on its own facts — insurance premiums paid by an owner, on assets used in another's trade — but its real test was that a deduction is prima facie proper if incurred for the trade of the person making the return, even if a third party also benefits. Eastern Investments established that in the absence of fraud or oblique motive, a transaction entered into as part of the assessee's legitimate commercial undertaking, in order indirectly to facilitate the carrying on of its business, qualifies; the test is not whether the other side gained or whether the transaction proved prudent. Atherton confirmed that a sum expended voluntarily, not of necessity and without direct and immediate benefit, may still be wholly and exclusively for the trade. Odhams Press, relied on by the Revenue, was distinguished as a case where the Commissioners had found on the evidence that the write-off was not wholly for the assessee's own trade — again a question of fact. Applying these, commercial expediency and the principles of ordinary commercial trading govern; expenditure to foster another's business alone, a distribution of profits, a gratuitous payment or one with an improper purpose is not deductible. Here the Tribunal had found the opposite, on evidence, and that ended the matter.
in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessee's benefit the deduction would be claimable.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that a managing agent who voluntarily gave up Rs 2,09,114 of accrued commission at the managed company's request could deduct it under section 10(2)(xv) of the 1922 Act (now section 37(1)). The Tribunal had found the amount was given up on grounds of commercial expediency, not as a bounty, and that a stronger managed company meant larger commission for the agent later. That finding was one of fact, supported by evidence, so neither the High Court nor the Supreme Court could disturb it. This was decided by the Supreme Court (Supreme Court of India — Gajendragadkar J, Sarkar J and Subba Rao J (judgment of the Court delivered by Kapur J as printed in the report)) and bears on section 37(1) of the Income Tax Act 1961. It is reported as 1960 AIR 738; 1960 SCR (3) 130; (1960) 38 ITR 601; 1960 SCJ 1258. This is the case that settles two things at once. First, expenditure need not produce a direct and immediate benefit to the assessee's own trade; a voluntary payment made on grounds of commercial expediency, indirectly facilitating the business, still qualifies. That a third party also benefits is immaterial. Second, and just as useful in practice, whether a sum was laid out wholly and exclusively for the business is a question of fact for the Tribunal, and a finding supported by evidence cannot be reopened in reference or appeal. The judgment also draws the boundary: expenditure to foster only another's business, a distribution of profits, a wholly gratuitous payment, or one for an improper or oblique purpose, stays disallowed. It remains the standard citation for commercial expediency in section 37(1) disputes. If it applies to you, the first step is this: Build the commercial-expediency case at the Tribunal stage, since that is where the finding of fact is made and it is very hard to displace afterwards.
The assessee firm was managing agent of Keshav Mills Ltd, Petlad, under a 1935 agreement entitling it to commission on sales and on ginning, pressing, dyeing and labour bills. For the accounting year 1950 the commission worked out to Rs 3,09,114. During that year, at the oral request of the managed company's Board, the agent agreed to accept only Rs 1,00,000 and gave up the balance of Rs 2,09,114. The Income-tax Officer and the Appellate Assistant Commissioner taxed the whole Rs 3,09,114 as accrued commission. The Tribunal agreed the whole amount had accrued but allowed the sum given up as expenditure under section 10(2)(xv) of the Indian Income-tax Act 1922. In a supplementary statement it found the managed company's balance sheet was weak, the agent had waived commission in earlier bad years, the remission was bona fide with no oblique motive, and the two businesses were linked so that a stronger managed company meant larger commission in future. The Bombay High Court treated this as a finding of fact and answered in the assessee's favour. The Revenue appealed by special leave. The matter was decided on 1960-02-17 by the Supreme Court (Supreme Court of India — Gajendragadkar J, Sarkar J and Subba Rao J (judgment of the Court delivered by Kapur J as printed in the report)). On those facts the Supreme Court held as follows. The appeal was dismissed with costs. The Tribunal's conclusion that the Rs 2,09,114 was laid out wholly and exclusively for the purpose of the assessee's business was a finding of fact; there was evidence to support it, so it could not be interfered with. On that finding the amount was a deductible expense under section 10(2)(xv). The Court accepted that the sum was given up for reasons of commercial expediency and not as a bounty to the managed company, and that the agent stood to benefit because a financially sounder managed company would yield it larger commission in future. Voluntariness was no bar: so long as the sum is given up for the assessee's own business benefit, the deduction is claimable.
The Court worked through the authorities rather than laying down a new rule. Tata Sons showed that a managing agent's voluntary contribution to the managed company's bonus was deductible because, on ordinary commercial principles, it raised the managed company's profits and so the agent's commission. Union Cold Storage failed on its own facts — insurance premiums paid by an owner, on assets used in another's trade — but its real test was that a deduction is prima facie proper if incurred for the trade of the person making the return, even if a third party also benefits. Eastern Investments established that in the absence of fraud or oblique motive, a transaction entered into as part of the assessee's legitimate commercial undertaking, in order indirectly to facilitate the carrying on of its business, qualifies; the test is not whether the other side gained or whether the transaction proved prudent. Atherton confirmed that a sum expended voluntarily, not of necessity and without direct and immediate benefit, may still be wholly and exclusively for the trade. Odhams Press, relied on by the Revenue, was distinguished as a case where the Commissioners had found on the evidence that the write-off was not wholly for the assessee's own trade — again a question of fact. Applying these, commercial expediency and the principles of ordinary commercial trading govern; expenditure to foster another's business alone, a distribution of profits, a gratuitous payment or one with an improper purpose is not deductible. Here the Tribunal had found the opposite, on evidence, and that ended the matter. In the words reproduced by the source cited on this page: "in order to justify deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessee's benefit the deduction would be claimable."
It was decided by the Supreme Court on 1960-02-17 and is reported as 1960 AIR 738; 1960 SCR (3) 130; (1960) 38 ITR 601; 1960 SCJ 1258. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 37(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with costs. The Tribunal's conclusion that the Rs 2,09,114 was laid out wholly and exclusively for the purpose of the assessee's business was a finding of fact; there was evidence to support it, so it could not be interfered with. On that finding the amount was a deductible expense under section 10(2)(xv). The Court accepted that the sum was given up for reasons of commercial expediency and not as a bounty to the managed company, and that the agent stood to benefit because a financially sounder managed company would yield it larger commission in future. Voluntariness was no bar: so long as the sum is given up for the assessee's own business benefit, the deduction is claimable. It arises in Deductions & Disallowances matters, on section 37(1) of the Income Tax Act 1961, and was decided by Supreme Court of India — Gajendragadkar J, Sarkar J and Subba Rao J (judgment of the Court delivered by Kapur J as printed in the report). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put on record the concrete benefit to your own business: the counterparty's financial position, the effect on your future income stream, and any past pattern of similar conduct. Show the payment was not a bounty, not a distribution of profits and had no oblique motive; get the recipient's request or resolution on file. Do not argue only that the payee benefited; frame every fact as a benefit to the assessee's own trade, with the third party's gain incidental.
Still good law. Consistently followed on commercial expediency under section 37(1); the report's own citator notes it applied and referred to in later Supreme Court decisions through 1979. No later decision doubting it was checked against. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Decided under section 10(2)(xv) of the Indian Income-tax Act 1922; the equivalent provision is section 37(1) of the 1961 Act, and the sections field gives the modern equivalent. The reference itself came up under section 66(1) of the 1922 Act. The report's header names the Bench as Gajendragadkar, Sarkar and Subba Rao JJ but the judgment as printed is delivered by Kapur J; the discrepancy is in the source and is not resolved here. Amount of costs not stated. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with costs. The Tribunal's conclusion that the Rs 2,09,114 was laid out wholly and exclusively for the purpose of the assessee's business was a finding of fact; there was evidence to support it, so it could not be interfered with. On that finding the amount was a deductible expense under section 10(2)(xv). The Court accepted that the sum was given up for reasons of commercial expediency and not as a bounty to the managed company, and that the agent stood to benefit because a financially sounder managed company would yield it larger commission in future. Voluntariness was no bar: so long as the sum is given up for the assessee's own business benefit, the deduction is claimable.
TaxSphere, “CIT v Chandulal Keshavlal & Co”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-chandulal-keshavlal-co/ (validity last checked 2026-08-29)
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