1960 (11) TMI 18 - SC - Income Tax

Whether, in the facts and circumstances of this case, the Appellate Tribunal was right in holding that ₹ 61,818, spent by the assessee to train Indian boys as jockeys, did not constitute expenses of the business of the assessee allowable under section 10(2)(xv) ? Held that - High Court has rightly held that the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent s business. It was to prevent the threatened extinction of the business of the respondent. In the result this appeal is dismissed

Summary

Issues:
1. Whether the expenditure incurred for training Indian boys as jockeys constitutes allowable business expenses under section 10(2)(xv) of the Income-tax Act.
2. Whether the expenditure in question is of a capital nature or revenue expenditure.
3. Whether the expenditure was wholly and exclusively laid out for the purpose of the respondent's business.

Analysis:
The case involved an appeal against the High Court's judgment regarding the deductibility of expenses incurred by an association of persons for training jockeys. The respondent, engaged in holding race meetings, spent a significant sum on establishing a school for training jockeys. The Income-tax Appellate Tribunal disallowed the deduction, leading to the appeal. The Tribunal found that the respondent's business did not involve providing jockeys, the benefit was enduring, and the expenditure was not directly related to profit-earning. The respondent argued that the expenditure was to promote efficient jockeys and prevent races from being abandoned due to a scarcity of jockeys. The appellant raised points regarding the nature of the expenditure, its direct connection to profit-earning, and its enduring benefit.

The Supreme Court analyzed previous judgments emphasizing that expenditure must be wholly and exclusively laid out for the business to be deductible. The Court considered the commercial expediency of the expenditure and its necessity for the business. It cited cases where expenses incurred for business preservation were allowed as deductions. The Court distinguished cases where expenses were not solely for the purpose of the trade. It rejected the argument that the expenditure created an asset of enduring nature. Ultimately, the Court held that the expenditure on training jockeys was necessary for the respondent's business continuity, preventing its extinction. Therefore, the expenditure was deemed wholly and exclusively laid out for the business, making it an allowable deduction. The Court dismissed the appeal, affirming the High Court's decision in favor of the respondent.