1. The assessee is the proprietrix of a business called Swami and Co., Madras. The business consisted in the export of goat and sheep skins. She employed her husband, one V. Narayanaswami Iyer, as her agent and manager first under an agreement entered into on 16-10-1948. His remuneration was fixed under that agreement at Rs. 750 per mensem or an amount calculated at the rate of five per cent, on the entire turnover whichever was higher. Subsequently on and from 1-7-1949 his remuneration was Increased. It was fixed at a minimum rate of Rs. 750 per mensem or 3/4 per cent. on the turnover if is ranged between 18 to 24 lakhs and 1 per cent. if the turnover exceeded 24 lakhs.
According to the agreement, in the assessment year 1951-52, a total sum. of Rs. 33146 was paid to the said Narayanaswami Iyer. This amount was claimed as allowable deduction in computing the total income. The Income-tax Officer, however, held that only a sum of Rs. 15000 is allowable. He disallowed the balance. The Appellate Assistant Commissioner of Income-tax confirmed the order of the Income-tax Officer. On appeal the Appellate Tribunal modified the order by allowing remuneration at the rate of 5 per cent, on the turnover in the place of Rs. 15000 allowed by the Income-tax Officer. The assessee thereupon required the Appellate Tribunal to refer to the High Court the following question of law:
'Whether, on the facts and in the circumstances of the case the disallowance of a sum of Rs. 16573 out of the expenses incurred by the petitioner for payment of remuneration to V. Narayanaswami Iyer is permissible under the provisions of Section 10(2)(xv) of the Indian Income-tax Act.'
The Appellate Tribunal rejected the application on the ground that no question of law arises on the facts of the case. The assessee has now filed this application in this court praying that the court may direct the appellate Tribunal to refer' the said question of law for decision. Section 10(2)(xv), Income-tax Act provides the deduction from the total income,
'any expenditure (not being an allowance of the nature described in any of the Clauses (1) to (xv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business..'
We understand that the findings of the Income-tax authorities to be this : that the entire amount of Rs. 33,146 cannot be deemed to be an expenditure incurred wholly and exclusively for the purpose of the business. ' It cannot be said that there was no material to arrive at this finding. First, there was the admitted relationship between the assessee and the manager. Then, there was the fact that as a result of the later arrangement the assessee herself became entitled only to about 48 per cent, of the net profits, whereas the employee became entitled to about 52 per cent, including the amount paid to him in the gross profits. There was the further fact that the subsequent agreement was made within' hardly a year of the original agreement.
2. The question then for the Income-tax authorities was how much of this amount could be allowed as expenditure wholly and exclusively for the purpose of such business. This question they could decide only by estimating what could be reasonable expenditure for the purpose for which the said Narayanaswami Iyer was employed. How much should be allowed as reasonable expenditure on this account is a pure question of fact. .
3. The learned counsel for the petitioner, contended firstly, that the question what, expenditure could be held to be expenditure laid out or expended wholly and exclusively for the purpose of the business was a question of law and secondly, that, in any event, there was no power in the Income-tax authorities to enquire into the reasonableness or otherwise of any particular' expenditure incurred in the business.
Generally speaking, both the contentions of the learned counsel are unexceptionable, but in the case before us we are convinced that there is no question of law and it is also clear that the Income-tax authorities have not acted contrary to the general principle that what expenditure for the purpose of the business is reasonable or not is outside the province of the Income-tax authorities to determine. Questions may arise as regards the first point, whether a particular kind of expenditure can be said to be expenditure laid out or expended wholly and exclusively for the, purpose of the business.
There are several Gases in England dealing with different claims under a similar provision and there has been a discussion as to how far a particular kind of expenditure could be said to fall within this category.
But we have nothing like tills here. It is certainly not the case of the Department that salary paid to the manager is not, as such, an expenditure wholly and exclusively incurred for the purpose of the business. What they find is that the amount now claimed as having been paid to Narayanaswami Iyer is not in its entirety a sum expended wholly and exclusively for the purpose of that business.
Having found so, they were compelled to find out how much of it could be properly held to fall within the class of deduction covered by Clause (xv). It is only to this extent it became necessary for the Department to estimate the reasonable amount payable as salary to Narayanaswami Iyer. As we have already mentioned, the determination of what is reasonable salary to be paid to an employee of the business does not involve a question of law.
4. In this view it is not necessary to discuss the decisions cited by the petitioner's counsel in -- 'Craddock v. Zevo Finance Co., Ltd.', (1944) 27 Tax Gas 267 (A) and -- 'Morgan v. Tate and Lyle Ltd.', 1953-2 All ER 162 (B). There is direct authority of decisions in Indian Courts, one of which is referred to in the order of the Appellate Tribunal for the position that it is open to the Income-tax department to take into consideration various factors to ascertain whether the amount claimed as a deduction under the above provision is an amount strictly falling within the scope of that provision.
5. This application is therefore dismissed withcosts, Rs. 150.