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Issues:
1. Taxability of interest income deemed to be received in British India. 2. Admissibility of expenditure incurred in connection with criminal litigation under Section 10(2)(xv) of the Income-tax Act. Analysis: 1. The judgment pertains to a reference under Section 66(1) of the Indian Income-tax Act regarding the taxability of interest income credited in the books of the assessee, a resident individual. The assessee contended that the interest amount reflected in the books was not physically remitted from Bhawalpur State to British India, asserting it as a mere book adjustment. However, the Department argued that as per the mercantile system of accounting followed by the assessee, the interest was deemed to have accrued and hence was taxable. The Tribunal concurred with the Department's view, emphasizing that the interest should be considered as received in British India and hence taxable under Section 4(1)(a) of the Income-tax Act. The Tribunal's decision was based on the regular transfer entries between business centers and the extinguishment of liabilities, indicating the receipt of the amount in British India. The judgment also cited relevant case laws to support the decision, ultimately ruling in favor of taxability. 2. The second issue revolved around the admissibility of an expenditure of &8377; 7,512 incurred in a criminal litigation under Section 10(2)(xv) of the Income-tax Act. The assessee claimed the amount as an expense related to the litigation, seeking its deduction as a business expenditure. However, the Tribunal, based on the Department's findings, disallowed the claim stating that the expense was not incidental to the business. The judgment highlighted the necessity for expenses to be laid out or expended wholly and exclusively for the purpose of the business to qualify for deduction under Section 10(2)(xv). Citing case laws and interpretations, the judgment emphasized that expenses must be incurred for the purpose of earning profits in the trade to be considered deductible. As no evidence was presented to establish the expense's direct connection to the business purpose, the claim was rejected. Consequently, the judgment answered the first question affirmatively regarding taxability and the second question negatively regarding the admissibility of the expenditure, awarding costs to the Department.
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