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Issues Involved:
1. Whether the Tribunal was justified in upholding the disallowance of commission paid to Dena Bank, Bombay. Summary: Issue 1: Disallowance of Commission Paid to Dena Bank The assessee, a registered partnership firm, claimed a deduction for a commission of Rs. 36,215 paid to Dena Bank for furnishing a bank guarantee to pay income-tax on a voluntary disclosure of income. The Income-tax Officer disallowed this claim, which was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, citing the decision in CIT v. Oriental Carpet Mfg. (India) P. Ltd. [1973] 90 ITR 373. Assessee's Arguments: 1. The commission was for protecting and preserving the business property, as the assessee was obligated to pay tax within six months u/s 68(1)(ii) of the Finance Act, 1965. 2. The expenditure was incurred out of commercial expediency. 3. The bank guarantee allowed the assessee to retain the tax amount in the business, thus being wholly and exclusively for business purposes. Revenue's Arguments: 1. The expenditure was for obtaining time to pay a statutory liability, not for business purposes. 2. Expenses incurred for raising funds or obtaining a bank guarantee for tax payment do not qualify as admissible expenses. Legal Analysis: The court examined whether the expenses were "wholly and exclusively" for business purposes u/s 37. The terms "wholly" and "exclusively" refer to the quantum and motive behind the expenditure. The court referenced several precedents, including CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC) and Sassoon J. David & Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC), which clarified that expenses need not be necessary but should promote business and earn profits. Court's Conclusion: The court concluded that the purpose of obtaining the bank guarantee was to protect the business assets and keep the business running, thus qualifying as an admissible expense. The court disagreed with the Revenue's contention that the expenditure was for mixed purposes, emphasizing that the primary purpose was business-related. Judgment: The court held that the Tribunal erred in disallowing the commission paid to Dena Bank. The question was answered in the negative, in favor of the assessee and against the Revenue. The Commissioner was directed to pay the costs of the reference to the assessee.
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