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Issues Involved:
1. Whether the assessee was entitled to a deduction of Rs. 8,250 paid as income-tax consultant fees under section 10(2)(xv) of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Entitlement to Deduction under Section 10(2)(xv): The primary issue in this case was whether the fees paid by the assessee to an income-tax consultant could be deducted as an expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The assessee claimed the deduction for fees paid during the assessment year 1952-53 for services rendered by the consultant in connection with assessments for previous years, including those where income had been concealed. Arguments and Tribunal's Decision: The income-tax authorities disallowed the deduction, arguing that the fees were related to a voluntary disclosure scheme, which was not a general feature of normal income-tax assessments. The Tribunal, however, disagreed with this reasoning, stating that the deduction must be considered based on the legal position rather than departmental practice. It concluded that the fees could not be claimed as a deduction under section 10(2)(xv) because the tax liability arises after income is earned, and thus, the fees were not expended wholly and exclusively for the purpose of the business. Judicial Interpretation of "For the Purpose of Business": The court examined the judicial interpretation of the phrase "for the purpose of business," which means for the purpose of carrying on business and earning profits. The expenses must be incurred to enable the business to earn profits and not merely in the course of or arising out of the business. The court referred to the case of Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax, where it was held that expenses must be incurred in the character of a trader to be deductible. Arguments by Assessee's Counsel: Mr. Samarth, representing the assessee, argued that the expenses were incurred to ascertain the true profits of the business for assessments, and hence, were necessary for earning profits. He cited observations from the House of Lords in Smith's Potato Estates Ltd. v. Bolland, where it was suggested that expenses to ascertain profits could be deductible. Court's Analysis and Conclusion: The court noted that the majority decision in the House of Lords case was against the assessee's argument. The majority held that expenses for ascertaining taxable profit or disputing it with revenue authorities are not for earning profits but for ascertaining tax liability, which is an obligation as a taxpayer, not as a trader. The court agreed with this view, stating that such expenses are not for the purpose of carrying on business or earning profits. Specific Circumstances of the Case: The court highlighted that the expenses in this case were incurred to settle tax liabilities arising from concealed income, which is not a business expense but an effort to avoid penal consequences. The court emphasized that expenses incurred to rectify a taxpayer's fault, such as concealing income, are not deductible as they are not related to the business's purpose. Rejection of Departmental Practice Argument: The court also rejected the argument that the deduction should be allowed based on departmental practice, stating that a practice cannot justify a claim that is not legally permissible under section 10(2)(xv). Final Judgment: The court answered the question in the negative, concluding that the assessee was not entitled to the deduction of Rs. 8,250 paid as income-tax consultant fees under section 10(2)(xv) of the Indian Income-tax Act, 1922. The assessee was ordered to pay the costs of the department.
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