1. The question for decision is
'Whether on the facts and in the circumstances of the case, the applicant was entitled to the deduction of Rs. 5127 in the assessment year 1945-46 and Rs. 4742 jn the . assessment year 1946-47 under Section 10(2) (XV) of the Indian Income tax Act.'
2. The facts were not really in dispute even before the Appellate Incometax Tribunal. The Tribunal reported :
'It was admitted that the agreement on the basis of which the payments had been made was only oral, and that Karuppan Chettiar did not do anything for the business, apart from helping in securing the licence which enabled the assessee to export cloth to Ceylon. That there was such an agreement to pay Karuppan Chettiar that Karuppan Chettiar helped him in obtaining a licence and that Karuppan Chettiar was paid the sums referred to above were not in dispute before the Tribunal.'
Learned counsel for the applicant pointed out that the assessee, who was trading in piece-goods was exporting goods to Ceylon in the past, one of the importers in Ceylon being Karuppan Chettiar himself. During the assessment years, however, it was necessary to obtain a import licence in Ceylon. The further case of the assessee was that without the help of Karuppan Chettiar, i.e., without the accounts he produced to prove that, in the past, the assessee had been exporting piecegoods to Ceylon to persons including Karuppan Chettiar, it would not have been possible for the assessee to obtain that import licence. The assessee applied for the licence, Karuppan Chettiar produced the evidence, and the assessee obtained the licence. It was for these services that the assessee entered into the agreement with Karuppan Chettiar, to give him as his commission half of the profits On the transactions, i.e., exports to Ceylon. The exports in the assessment years were partly to Karuppan Chettiar himself and partly to others.
3. Under Section 10(2) (XV) of the Incometax Act, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and, exclusively for the purposes of such business, profession or vocation can be excluded. It is for the assessee applicant to show that the expenditure he incurred by payment to Karuppan Chettiar in the two years of assessment was expenditure which was not only not in the nature of capital expenditure but was expenditure 'laid out or expended wholly or exclusively for the purposes of such business.'
4. The agreement between Karuppan Chettiar and the assessees was oral. The terms thereof were not clear; but it was conceded before the Incometax authorities including the Incometax Appellate Tribunal that it was out of the profits arising from the export business to Ceylon that Karuppan Chettiar was to be paid, the payment being half of those profits. No doubt learned counsel for the assessee drew our attention to the entries in the account books, which showed the payment to Kanippan Chettiar as commission. It was again shownas commission and was an expenditure incurred in the final profit and loss accountwhich the assessee-cast. But on the statement of the assessee himself, in form and in sub-stance, apart from the description as commission, it was really a case of division of profits, it was not a question of capital expenditure. It was not a question of money expended wholly and exclusively for the purpose of the business which the assessee carried on. The pattials which the assessee as an exporter sent to the importers in Ceylon gave the price, which included the assessee's margin of profits. There were three pattials in one year and four pattials in another which exhausted the quota available to the assessee for export to Ceylon. On that business for the assessment year having been concluded, the amount realised as profits on each of the transactions during the year was ascertained, and half of lit was credited to Karuppan Chettiar in the assessee's books, and that was again shown as an item of expenditure in the final profit and loss account of the assessee. That did not however, prevent its being a case of division of profits, profits already ascertained with reference to the export business, i.e. an item of the assessee's business involved in the export of goods to Ceylon. As we said before, it was really in form and in substance a division of ascertained profits; and as such the assessee was rightly held not to be entitled to any deduction of incometax. Section 10(2) (XV) does not apply to those two items of expenditure, and it is our answer to the question. As the assessee has failed he must pay the costs of the Commissioner of Incometax which we fix at Rs. 250/-.