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Issues:
1. Allowability of payments of salaries and bonuses made to employees during their jail custody as deductions under section 10(2)(xv). Analysis: The judgment by the Allahabad High Court, delivered by V. Bhargava C.J., and S. C. Manchanda J., addressed the issue of whether payments of salaries and bonuses made to two employees, who were in jail custody as under-trial prisoners, are allowable as deductions under section 10(2)(xv). The employees, accused of murder, were acquitted later. The Tribunal found that the company continued to pay their full salaries and bonuses during their jail term, despite not performing their duties. The Tribunal held that the payments were not made out of commercial expediency. The company argued that the payments were necessary to prevent the disclosure of company secrets and that the employees provided advice while in jail. However, the Tribunal found no satisfactory proof of these claims and concluded that the payments were made due to extra-commercial considerations related to the directors. The Tribunal also considered an alternative claim that part of the salaries, representing leave salary entitlement, should be considered as expenditure for business purposes. The Appellate Assistant Commissioner disallowed this claim as well, stating that the payments were not made based on business considerations. The High Court disagreed with this decision, highlighting that the employees were entitled to full pay during their leave periods. Therefore, the salary paid for these leave periods should be considered as expenditure incurred wholly and exclusively for the purpose of the business, as it was a right earned by the employees through their work. Conclusively, the High Court answered the question in the negative, except regarding the payment of leave salaries for specific periods. The Court held that the amount representing leave salaries for those periods should be allowed as deductions under section 10(2)(xv). The costs were ordered to be paid by the assessee due to the judgment mainly favoring the department. The fee of counsel was fixed at Rs. 200.
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