Beaumont, C.J:— This is a reference by the Commissioner of Income-Tax under Section 66(2) in which he raises two questions. The facts giving rise to the questions are simple. By an agreement made on the 24th September, 1919 Tata Sons Ltd., were appointed Agents for the Tata Power Co., Ltd., for 41 years on a commission of 10 per cent, profits plus an office allowance and there was power to assign the agreement and to assign any part of the commission. By an agreement of the 15th October 1926 Tata Sons Ltd, agreed to pay F.E Dinshaw, Ltd., two annas in the rupee out of the commission which they received under the 1919 agreement, and four days later, that is on the 19th October, 1926, Tata Sons, Ltd., entered into a similar agreement with one Tilden Smith. On the 21st November, 1929, Tata Sons, Ltd., assigned their rights under the 1919 agreement to the present assessees subject to the agreement with F.E Dinshaw, Ltd., and Tilden Smith. We are told that subsequently Tata Power Ltd., entered into direct agreement with the assessee for payment of 10 per cent, commission to them, and the assessees entered into a direct agreement with F.E Dinshaw Ltd., and Tilden Smith for the payment of the two annas in the rupee to them. The first question raised is whether in the circumstances of the case the assessee company has been correctly assessed on the total amount of Rs. 5,17,288, received by it in respect of the 10 per cent, commission from Tata Power Ltd., as profits and gains of the business carried on by it as the Managing Agents of the Tata Power Co., Ltd., that is to say, whether the assessees have been correctly assessed on the whole 10 per cent, commission, or whether they are entitled to deduct four annas in the rupee which they have to pay to F.E Dinshaw Ltd, and Tilden Smith. That part of the case seems to fall exactly within the decision of this court in Macdonald & Co. v. Commissioner of Income-Tax, Bombay and we must follow that decision and answer the first question in the affirmative.
2. The Second question is whether the assessees can deduct the commission of two annas in the rupee which they have paid to F.E Dinshaw Ltd. and Tilden Smith as being an expenditure not being in the nature of capital expenditure incurred solely for the purpose of earning commission, and thereby being a deduction authorised under Section 10(2) Clause (ix) of the Income Tax Act.
3. The question whether the expenditure was incurred solely for the purpose of earning the profits or gains, i.e, the commission is one of fact and there is no finding of fact on which we can hold that the deduction was one falling within that sub-section. That being so, the second question must be answered in the negative.
4. The assessee must pay the costs of this reference on the original side scale to be taxed by the Taxing Master.
Rangnekar, J.:— I agree.