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Issues Involved:
1. Whether the payment of Rs. 82,250 as a fine in lieu of confiscation of goods is an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Allowability of Fine as Expenditure under Section 10(2)(xv): The primary issue in this case is whether the payment of Rs. 82,250 by the assessee, in lieu of confiscation of goods imported illegally, can be considered an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. Facts and Arguments: The assessee, an importer of dates, imported these goods by steamers in contravention of the notification under the Imports and Exports Control Act, which permitted import only by country crafts. The Customs authorities, under section 167(8) of the Sea Customs Act, confiscated the goods but gave the assessee an option under section 183 to pay a fine of Rs. 82,250 in lieu of confiscation. The assessee paid the fine and claimed it as a deductible expenditure under section 10(2)(xv). The Income-tax Officer and the Appellate Assistant Commissioner disallowed this deduction, but the Tribunal allowed it, leading to the reference to the High Court. Legal Analysis: Section 10(2)(xv) allows the deduction of "any expenditure laid out or expended wholly and exclusively for the purpose of the assessee's business, profession or vocation." The court emphasized that this section implicitly requires the expenditure to be for the lawful conduct of the business. It is fundamental that no person can benefit from an unlawful act, and expenses incurred due to illegal activities cannot be considered as laid out for the business's lawful conduct. The court held that the fine paid was a consequence of the illegal act of importing goods by steamers, which was prohibited. This expenditure was not for salvaging or safeguarding the goods but was a penalty for the unlawful act. The court distinguished between permissible business expenses and penalties for unlawful acts, stating that penalties for breaches of law cannot be considered as business expenses. Precedents and Comparisons: The court referred to the case of Commissioners of Inland Revenue v. Alexander Von Glehn & Co., Ltd., where a similar principle was laid down. The court also discussed the Supreme Court's decisions in Maqbool Hussain v. The State of Bombay and Commissioner of Income-tax v. H. Hirjee, emphasizing that penalties for unlawful acts are not deductible as business expenses. Conclusion: The court concluded that the expenditure incurred due to the illegal importation of goods could not be an allowable deduction under section 10(2)(xv). The fine paid was a consequence of the unlawful act and not an expenditure for the lawful conduct of the business. Therefore, the question was answered in the negative, disallowing the deduction of Rs. 82,250 as an expenditure. Judgment: The High Court answered the reference in the negative, holding that the payment of Rs. 82,250 was not an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The assessee was ordered to pay the costs.
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