1978 (11) TMI 59 - HC - Income Tax

Summary

Issues:
Deduction of business expenditure claimed by the assessee.

Analysis:
The case involved a question of law referred by the Income-tax Appellate Tribunal regarding the deduction of Rs. 1,04,290 as business expenditure by the assessee. The assessee, a registered firm engaged in mica mining and manganese ore business, entered into a contract with the State Trading Corporation of India for importing paper in exchange for exporting manganese ore. The assessee incurred expenses on interest and letter of credit commission, which the Income Tax Officer disallowed, stating it was not incidental to the business. However, the Appellate Authority Commission allowed the deduction, considering the import of paper as incidental to the export business. The Tribunal upheld the AAC's decision, emphasizing the interconnection between the import and export businesses. The department contended that the expenditure was not necessitated by business needs and could not be deducted. The High Court noted that the nature of the expenditure as capital or revenue was not previously discussed and the claim was considered solely based on business relevance. The court applied the test of whether the expenditure was incurred wholly and exclusively for the business purpose, citing the Supreme Court's interpretation of business expenses. The court found that the expenditure was indeed incidental to the manganese ore business, as the import of paper was essential for obtaining the license to export ore. The court rejected the department's argument that the expenditure was not the assessee's obligation, as the agreement did not specify the Corporation bearing such costs. Therefore, the court concluded that the expenditure was admissible as a business expense, ruling in favor of the assessee.

In conclusion, the High Court determined that the sum of Rs. 1,04,290 claimed as business expenditure by the assessee was allowable. The court emphasized the interconnection between the import and export businesses, stating that the expenditure was incurred for the purpose of running the export business in manganese ore. The court rejected the department's argument that the expenditure was not part of the assessee's obligation, as the agreement did not specify such terms. The court held that the expenditure was admissible as a business expense, answering the question in the affirmative and against the department.