D.K. Mahajan, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal (Delhi Bench 'B') has referred the following two questions of law for our opinion:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal rightly held that the sums of Rs. 37,157 and Rs. 73,787 were chargeable to tax in the hands of the assessee-company in the assessment years 1956-57 and 1957-58 respectively?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal rightly disallowed the assessee-company's claim for deduction of the payment of Rs. 37,157 and Rs. 73,787, under Section 10(1) and Section 10(2)(xv) of the Indian Income-tax Act, 1922, in the assessment years 1956-57 and 1957-58, respectively?'
2. The assessee is Messrs. Panipat Woollen and General Mills Co. Ltd., Kharar. It had two units. The first unit was engaged in the spinning of yarn from raw and waste wool and was known as the Panipat Woollen Mills. The second unit was engaged in the spinning of yarn from imported wool tops and was known as the Navin Woollen Mills. The second unit was started in the year 1952. Weaving was also done in both of these units. The company from its inception was running in loss. In 1952, it decided to instal a plant for the manufacture of worsted yarn from imported wool tops. For this purpose a loan of rupees seven lakhs was raised from the Industrial Finance Corporation, New Delhi. This plant went into production in September, 1952. The original sole selling agents of the assessee-company for the sale of worsted yarn were Messrs. Murlidhar Chiranjilal. They were getting two per cent. as their commission on the sale of worsted yarn. The selling agents did not have straight dealings with the company. The company, therefore, terminated their agency. Thereafter, on the 15th of December, 1953, the assessee-company appointed Messrs. Saligram Prem Nath as their sole selling agents for the sale of worsted yarn. The new agents undertook to finance the company to the extent of rupees two lakhs and fifty thousand. The advances were to bear interest at the rate of 6 per cent. In addition to this, the agents were entitled to two per cent. commission on net proceeds of sales of goods in India. Before the agreement dated the 15th of December, 1953, was to expire, a second agreement was entered into between the said sole selling agents of the company on the 20th of October, 1955. The period of agency fixed in the new agreement was two years commencing from the 1st of January, 1956. The agency was non-transferable. The agents were also prohibited from undertaking any work from any other woollen worsted mills in India in any manner. It is really this agreement on which the fate of the reference hinges. It will be proper to mention its relevant clauses. The relevant clauses are:
'3(ii) Programme for the manufacture of goods will be made from time to time by the company in consultation and with the consent of the agents.
6(i) The agents shall invest full amount for the working of the worsted plant to the full possible capacity, beginning from the purchase of tops to the completion of the yarn sales including wages, powers, stores, and repairs and maintenance, etc. Such investments and expenses incurred on tops, manufacturing, bank charges, transport, insurance and octroi will be debited to the account of the company.
6(vi) The agents will be authorised to get the tops and goods insured. Such insurance charges will be payable by the company. Freight, octroi and coolie charges incurred up to the godowns of the agents will be payable by the company. After the goods have reached the godowns all expenses including the rent on godowns and other expenses of the shop, etc., of the agents will be paid by the agents out of their commission.
6(vii) From the time of purchase of tops to the point of sale of goods, tops, waste and other goods in the godowns of the agents bankers shall be in the custody of the agents-bankers. The tops and goods under process will be delivered and stored back in the above godowns of the agents-bankers after manufacture. The company will be provided full facilities for working the worsted plant. The above godowns at Kharar for the storage of tops, goods and waste will be provided by the company to the agents free of any rent.
6(viii) In case of any loss or damage to the tops or goods in transit or in godowns, the same will be debited to the account of the worsted plant.
6(ix) The accounts of the worsted plant will be maintained separately in an office situated near the worsted plant and the agents will have free access to the account books.
6(x) The management of the working of the worsted plant will' be carried on for achieving best results from the plant by the company in consultation with, and with the advice of the agents.
6(xi) The tops will be purchased by the company with the mutual consultation and consent of the company and the agents.
7(i) The agents shall be allowed a commission of 11/4% (one and a quarter per cent.) on the net proceeds of sales of all goods. Such commission shall be chargeable upon money actually credited to the company, and not on outstanding debts, if any. Besides, agents will get 50% (fifty per cent.) commission on the net profits of the worsted plant. The net profits will be ascertained after deducting all the manufacturing expenses, interest, insurance, depreciation and selling commission, etc. For allowing annual depreciation on the value of the machinery and building and lands, commencing from the date on which manufacturing actually starts under this agreement, a lump sum of Rs. 50,000 has been agreed to be deducted for determining the net profits or loss position. In case of net loss, if any, there will be a deduction of 50% (fifty per cent.) of such loss from agent's account.'
3. In pursuance of the agreement, the business in the worsted plant continued and the selling agents kept on providing the necessary finances from time to time. The investments were Rs. 8,71,573 on the 31st of March, 1957, and Rs. 11,20,638 on the 31st of August, 1957. The net result was that in the accounting year relevant to the assessment year 1956-57, the 50 per cent. commission on the net profits as worked out in terms of paragraph 7(i) of the agreement on the worsted plant came to Rs. 37,157 and in the relevant account year for the assessment year 1957-58 to Rs. 73,787. This income was claimed by the assessee, Messrs. Panipat Woollen and General Mills Company Ltd., Kharar, as a deduction on the ground that it was legitimate expenditure to earn profits. The deduction was claimed under Section 10(2)(xv) of the Indian Income-tax Act, 1922.
4. The matter before us pertains to two accounting years relevant to the assessment years 1956-57 and 1957-58. In order to give a clear picture, we will deal how the assessment in each year has proceeded right up to the stage of the Tribunal. For the assessment year 1956-57, the Income-tax Officer held that the amount of Rs. 37,157 was an admissible deduction. His order was, however, set aside by the Commissioner acting under Section 33B of the Indian Income-tax Act, 1922. The Commissioner held that this amount was in fact distribution of profits between the assessee and its selling agents after the profits had accrued and had been ascertained. The assessee then came up in appeal to the Appellate Tribunal. For the account year relevant to the assessment year 1957-58, the Income-tax Officer held that the amount of Rs. 73,787, the 50% commission earned under paragraph 7(i) of the agreement was not a permissible deduction. The, assessee went up in appeal to the Appellate Assistant Commissioner, who found for the assessee. This led to an appeal by the department to the Appellate Tribunal.
5. The Appellate Tribunal dealt with the appeal of the assessee and the appeal of the department together and disposed of the same by one order. It came to the conclusion that the claim of the assessee that the amounts claimed as permissible deductions could not be granted. According to the Tribunal, on a true reading of the agreement between the assessee and its agent, it was a case of a joint venture and the 50 per cent. commission paid to the agent was in fact his share of the net profits. For arriving at this finding, support was derived from the fact that the assessee and its agent had agreed to share the losses as well. The assessee was dissatisfied with the Tribunal's decision and moved it under Section 66(1) and asked for a reference of certain questions of law arising out of the order of the Tribunal for the opinion of this court. The Tribunal granted the application and has referred the questions already mentioned in the opening part of this order for our opinion.
6. The short question that requires determination is as to whether the two amounts in question can be allowed as a deduction under Section 10(2)(xv) or they are chargeable to income-tax in the hands of the assessee as his net profits. The contention of the assessee is that they are permissible deductions and not chargeable to income-tax, whereas the contention on behalf of the department is that they are chargeable to tax being the net profits of a joint venture.
7. In order to appreciate the respective contentions of the learned counsel for the assessee as well as the department, one has to keep in view the agreement dated the 20th of October, 1955, as well as certain other surrounding circumstances. I have already set out the relevant terms of that agreement and before proceeding further it will be proper to set out the surrounding circumstances. The surrounding circumstances are:
(a) The assessee-company from its inception was a losing concern. Its first selling agents, Messrs. Murlidhar Chiranjilal, caused considerable embarrassment to the company and had to be got rid of : (b) This brought in the selling agents, Messrs. Saligram Premnath. Their first agency agreement was entered into on the 15th of December. 1953, and its purport has already been set out in the earlier part of this order. The net result of the working of this agreement was that there was loss.
(c) The agents had no other connection with the assessee-company excepting that of a business connection. At the time when the company was floated, its promoter, Mr. Desh Bandhu Gupta, had a status which enabled him to borrow loans from the banks on personal security. He 'died in an air crash with the result that the company was not able to raise money from the banks and was in serious financial difficulties.
8. It is in the wake of these surrounding circumstances that the second agreement dated the 20th of October, 1955, came into being. By this agreement, the selling agents were to furnish unlimited funds for the proper running of the business of the assessee-company. As their financial stake was high they were to take charge of the entire production and in fact the production was to be oriented with their active co-operation and consultation. They were even to share the losses, if they were any, and their share of losses was to be adjusted against their account, namely, the interest due to them as well as 11/2 per cent. commission on the total sales. The method of computing profits in order to determine the commission over and above 11/4 per cent., namely, 50 per cent. commission under Clause 7(i) of the agreement, did not provide for the determination of the net profits according to mercantile practices or in accordance with Section 10 of the Income-tax Act. A fixed depreciation was provided, whereas, in fact, allowable depreciation under the Act was different from the one fixed under the agreement. It has also been found that as soon as the period of the second agreement with the agents came to an end, the agency was terminated. It is after keeping in view these considerations that the question has to be determined, whether the amount of 50 per cent. commission under Clause 7(i) of the agreement was an expenditure laid out or expended wholly and exclusively for the purposes of such business within the meaning of Section 10(2)(xv).
9. Before the Tribunal the department's case was that the instant case fell within the rule laid down by the Privy Council in Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax, A.I.R. 1931 P.C. 165, whereas the case of the assessee was that it really fell within the ambit of the decision of the Supreme Court in Dharamvir Dhir v. Commissioner of Income-tax,  42 I.T.R. 7; [19G1] I S.C.R. 359 (S.C.). In such like cases it is very difficult to categorically say that a particular case falls within the rule of one case or the other and this fact was highlighted by their Lordships of the Supreme Court in Golan Lime Syndicate v. Commissioner of Income-tax,  59 I.T.R. 718;  2S.C.R. 596 A.I.R. 1966 S.C. 1564 wherein it was observed as follows:
'The question whether a particular expenditure incurred by the assessee in connection with his business is of a revenue or capital nature for the purpose of claiming deduction under Section 10(2)(xv), Income-tax Act, is a difficult one and various tests have been formulated by the Supreme Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax,  27 I.T.R. 34;  I S.C.R. 972 (S.C.) and Pingle Industries Ltd. v. Commissioner of Income-tax,  40 I.T.R. 67; [-I960] 3 S.C.R. 681 (S.C.), and Abdul Kayoom v. Commissioner of Income-tax,  44 I.T.R. 689;  3 S.C.R. 328 (S.C.). None of the tests is, however, exhaustive or universal. Each case must depend on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases by matching the colour of one case against the colour of another.'
10. Thus one can only refer to the cases cited at the Bar for the purpose to see if they lay down any general principle. Otherwise, each case has to be decided on its own facts. What will have to be determined is whether the deductions claimed have or have not been expended wholly or partly for the purposes of the business carried on by the assessee. The department's case is that the terms of the agreement and the surrounding circumstances lead to one and only one conclusion, namely, that it is a case of a joint venture and what was shared was the net profits of this joint venture. It is not contended that the agreement in question amounted to a partnership agreement. It is also not the contention that the agreement was a bogus agreement or was entered into to dodge income-tax. The main burden of the argument is that the agents virtually took control of the business and agreed to share its losses. Therefore, the relationship under the agreement between the agents and the assessee-company was that of co-adventurers and under Clause 7(i) of the agreement, what was being shared, was the net profits of the assessee-company.
11. So far as the assessee-company is concerned, its case is that the agents had a larger financial stake for the running of the business because the entire capital to run it was to come from them, and, naturally, therefore, they took the control of the business and also agreed to share the losses. In one way they joined with the assessee-company in an adventure to exploit the manufacturing capacity of the plant of the assessee-company. But that will not by itself make them either partners or co-adventurers for sharing of the profits. The agreement in essence remained an agreement whereby the relationship between the parties was that of principal and an agent and not of principal and principal. The main contention is that the net profits to be worked out for the purposes of Clause 7(i) of the agreement was a special fund. The net profits had not been worked out on any mercantile principle or in accordance with the Income-tax Act to determine the taxable income for the purposes of the Act. It was a fund arrived at only for the purposes of working out their commission and after that it had no meaning. If the terms of Clause 7(i) are closely examined, it will appear that there are a large number of deductions permissible under Section 10 which are not taken into account while determining the net profits for the purposes of that clause. This will be apparent from the two assessment years in question which take into account the deductions under Sections 10(2)(v), 10(2)(vi) and 10(2)(x). It will also be clear that the determination of net profits under Clause 7(i) was not done on any mercantile usage or practice.
12. In Dharamavir Dfiir's case, their Lordships of the Supreme Court observed after examining a number of decisions having a bearing on the interpretation of Section 10(2)(xv):
'... . if any amount is expended which is commercially expedient and is expended for the purpose of earning profits, it is a deductible expenditure.'
13. At a later part of this very judgment, their Lordships referred, with approval, to the test laid down by the Lord President in the Privy Council decision in Robert Addie and Sons' Collieries Ltd. v. Commissioners of Inland Revenue,  8 T.C., 671 :
'What is 'money wholly and exclusively laid out for the purposes of the trade' is a question which must be determined upon the principles of ordinary commercial trading. It is necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question, is it a part of the company's working expenses; is it expenditure laid out as part of the process of profit earning?'
14. In this case their Lordships also considered how the Pondicherry case had been later commented upon. In fact Lord Macmillan, while dealing with his own judgment, observed:
'In the Pondicherry case, the assessees were under obligation to make over a share of their profits to the French Government. Profits had first to be earned and ascertained before any sharing took place. Here the obligation of the appellants to pay a quarter of the commission which they receive from the Tata Power Co. Ltd., to F. E. Dinshaw Ltd. and Richard Tilden Smith's administrator is quite independent of whether the appellants make any profit or not.'
15. Later on the noble Lord said:
'In short, the obligation to make these payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that is, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business.'
16. It is significant that in Dharamvir's case, the trust had the control of the contracts of coal raising and the only point of distinction between Dharamvir's case and the instant case is that there was no liability for losses. Otherwise, on principle, there is no distinction between the present case and Dharamvir's case. But the case more in point is that of British Sugar . v. Harris (Inspector of Taxes),  7 I.T.R. 101, 104 (C.A.). In this case there was an agreement for remuneration by way of commission representing a percentage of profits for services to be rendered to the company. The only profit for purposes of commission was to be arrived at on conventional basis and not on the basis upon which the company would ascertain its profits for commercial purposes or the basis upon which it would ascertain its profits for income-tax purposes. Though the later consideration may not be of much importance but the fact remained that the fund on the basis of which 20 per cent. profit had to be worked out was calculated on conventional basis. In these circumstances, the question arose whether such payment had been made for the purposes of earning profits or was the division of profits between the two adventurers.
'Now in the present case, there is nothing approaching a purchase of a share of profits in that sense. It is not cash that passes in exchange for these profits, it is services; and the badge of such a contract is remuneration for services, and, therefore, the first thing that this remuneration would certainly not be is a share of profits purchased by the employee. Again, I quite accept the proposition that the mere circumstance by itself that services are rendered may riot be conclusive. I can conceive of a case where a person contributes to some sort of joint adventure services, while others contribute perhaps capital, land, plant and goods, arranging between themselves (it may be something short of a partnership) that nobody shall get anything until the pool of profits is ascertained, and then they shall divide it up between them in specified proportions. That, it seems to me, would be a real agreement for division of profits, because there would be one profit fund only. There would not be two 'profit' funds to be ascertained for different purposes. There would be one profit fund, and nobody would have any interest in anything until that profit, fund was ascertained and fell to be divided; but in the present case that is not the fact. In the present case there are two funds of so-called profits which come into the picture. The first one is the fund which has to be ascertained for the purpose of calculating the 20 per cent. In that fund, as such, the persons entitled to the profits of this company, namely, the shareholders, have no concern. It is used for the purpose, and for the purpose only, of ascertaining what is to be paid to the Skoda Works and to the Corporation. Now, when that amount has been ascertained, that fund has ceased to have any usefulness at all, and it then becomes necessary to ascertain what are the divisible profits, and for that purpose, to take another account, which not only would bring to depreciation, but would also take into account the sum that had been paid out to the Skoda Works, and the Corporation upon the taking of the first account. It seems to me that the circumstance that those two accounts have to be made out throws a very clear light upon the real nature of this transaction, and, looking at the clause in question as a whole, it seems to me clear beyond any reasonable doubt that the agreement is. merely an agreement under which, before ascertaining the divisible profits of this company at all, the Skoda Works and the Corporation are to receive upon a particular conventional basis a commission sum as remuneration for their services.
When that has been said, it appears to me that it brings the case within a very familiar category.'
17. This case was referred to with approval by their Lordships of the Supreme Court in Dharamvir's case, and, therefore, it has the seal of approval of the Supreme Court. It was observed by their Lordships of the Supreme Court in Travancore Sugars and Chemicals Ltd. v. Commissioner of Income-tax,  62 I.T.R. 566, 571;  1 S.C.R. 423 (S.C.), that:
'It is not easy to distinguish whether an agreement is for the payment of price stipulated in instalments or for making annual payments in the nature of income. The court has to look not only into the documents but also at the surrounding circumstances so as to arrive at a decision as to what was the real nature of the transaction from the commercial point of view. No single test of universal application can be discovered for a solution of the question. The name which the parties may give to the transaction which is the source of the receipt and the characterisation of the receipt by them are of little consequence. The court has to ascertain the true nature and character of the transaction from the covenants of the agreement tested in the light of surrounding circumstances.'
18. It will also be useful to refer to the decision of the Supreme Court in J. K. Woollen Manufacturers v. Commissioner of Income-tax,  72 I.T.R. 612 (S.C.), wherein it was observed:
'In applying the test of commercial expediency for determining that question, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the income-tax department. It is, of course, open to the Appellate Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee' of the assessee.'
19. It is not necessary to examine the various other cases that have been cited at the Bar because no case is parallel with the present case. The decided cases show that even one factor may make the deduction claimed as taxable and vice versa. The line dividing such cases is a very thin line. By keeping in view the facts and circumstances of each case one has to come to the conclusion whether the amount in question, which the revenue seeks to bring in as taxable profit, was in fact profit or in fact expenditure laid out wholly for the purposes of the business. Keeping in view the facts of the present case, we are clearly of the view that the amount of commission earned by the agents under Clause 7(i) of the agreement was an amount legitimately incurred by the assesses-company in carrying out its business activities in order to earn profits. Prior to the agreement in question, the company had been all through suffering losses. Even the coming in of the present agents and their first agreement did not alter the situation. It is only when the agents were saddled with onerous, responsibility that they had to suffer losses, if any, and had undertaken a heavy financial liability that the picture was altogether changed. The so-called profits for the working out of 50 per cent; commission were not arrived at on any commercial basis. They were arrived at on an agreed basis. The deductions to be taken into account to arrive at profits were not those which were contemplated either by the Income-tax Act or by a prudent commercial practice or normal commercial method of accountancy. It is, in our opinion, this distinction which tilts the case in favour of the assessee.
20. In this view of the matter, we are clearly of the view that the decisionof the Tribunal cannot be supported if the principles laid down in thevarious cases referred to by us are kept in view. The Tribunal was mainlyinfluenced by the fact that the agent had to share the losses and, therefore,it amounted to a joint venture. As already said, every undertaking betweentwo persons is, in one sense or the other, a joint venture. But that is notthe final test. The test is how the amount, that is claimed as a deduction,figures in the set up of a particular case and whether that amount hasactually gone to earn profits or it is itself the profits. Keeping in view, asalready said, the facts of the present case, the amount expended was in factexpended to earn profits and, therefore, was a legitimate deduction underSection 10(2)(xv).
21. For the reasons recorded above, we answer the questions referred infavour of the assessee. In view of the difficult nature of the questioninvolved, we will make no order as to costs.
22. I agree.