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Issues Involved:
1. Whether there was material upon which the Tribunal found that the assessee attempted to extract more rosin by contravening the terms of the lease. 2. Whether the sum of Rs. 5,000/- paid by the assessee as a fine under the penalty clause of the terms of the lease was a proper deduction within the meaning of Section 10(2)(xv) of the Indian Income-tax Act, 1922. Issue-Wise Detailed Analysis: Issue 1: Material Supporting Tribunal's Finding of Lease Contravention The Tribunal found that the assessee attempted to extract more rosin by contravening the terms of the lease. The relevant facts are as follows: - An agreement (Ex 'H') was entered into between the Tehri Garhwal State and the assessee on 24-11-1937, effective from 1-12-1937. Clause 11 of the agreement required the assessee to extract rosin according to specified standards and to pay compensation for any failure to observe these terms. - On 31-10-1944, the Home Secretary of Tehri Garhwal State accused the assessee of making channels deeper, broader, and longer than permitted and tapping small saplings, which violated the rules. Consequently, a fine of Rs. 5,000/- was imposed. - The assessee accepted this liability and paid the fine without objection. The Tribunal concluded that these facts provided sufficient material to support the finding that the assessee attempted to extract more rosin by contravening the lease terms. The court affirmed this conclusion, answering the first question in the affirmative. Issue 2: Deductibility of Rs. 5,000/- Fine under Section 10(2)(xv) The next issue was whether the Rs. 5,000/- fine paid by the assessee under the penalty clause of the lease terms was a proper deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922. - Section 10(2)(xv) allows for the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business, provided it is not in the nature of capital expenditure or personal expenses. - The court referenced several English cases to interpret the phrase "for the purpose of business." In 'Strong and Co. Ltd. v. Woodifield,' it was held that expenses necessary for earning profits could be deducted, but not those incurred after profits were earned unless expressly authorized by the Act. - In 'Commrs. of Inland Revenue v. Warnes and Co. Ltd.,' a penalty paid for a breach of law was not considered a deductible business expense. - Similarly, in 'Mask and Co., Panruti v. Commr. of Income-tax, Madras,' the Madras High Court held that damages paid for a breach of contract due to dishonest actions were not deductible as business expenses. Applying these principles, the court found that the Rs. 5,000/- fine was imposed for a breach of the lease terms and was not an expenditure made for the purpose of earning profits. It was deemed a penalty for violating the rules, not a commercial loss connected with the trade. Therefore, the court concluded that the Rs. 5,000/- fine was not deductible under Section 10(2)(xv) and answered the second question in the negative. Conclusion The court answered the first question in the affirmative, confirming that there was material to support the Tribunal's finding of lease contravention. The second question was answered in the negative, ruling that the Rs. 5,000/- fine was not a deductible business expense under Section 10(2)(xv). The Commissioner of Income-tax was entitled to costs, with a counsel fee of Rs. 250/-.
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