1970 (4) TMI 6 - SC - Income Tax

Expenditure was not laid out for any purpose other than that of carrying on the business - sum of Rs. 40,132 was payment of a revenue nature and, as such, allowable as deduction under s. 10(2)(xv) - revenue s appeal is dismissed

Summary

Issues:
- Refusal to require the Income-tax Appellate Tribunal to state the case and refer certain questions of law.
- Deductibility of a sum of Rs. 42,473 as revenue expenditure for the assessment year 1954-55.
- Justification of the High Court's decision in refusing to direct the Tribunal to state the case and refer the question.

Analysis:
The case involved an appeal to the Supreme Court from the Calcutta High Court's judgment, which declined to compel the Income-tax Appellate Tribunal to state the case and refer specific legal questions arising from an order related to the assessment year 1954-55. The respondent-company, engaged in mining mica, faced a dispute regarding the renewal of a mining lease. The company claimed a deduction of Rs. 42,473 as revenue expenditure for rent paid during the previous year. The Income-tax Officer initially disallowed the claim, but the Tribunal allowed the entire amount as deductible, considering it a revenue expenditure necessary for the business.

The Commissioner of Income-tax sought to refer the question of whether the sum was of a revenue nature and allowable as a deduction under the Income-tax Act. Both the Tribunal and the High Court rejected the application for reference. The Supreme Court upheld the High Court's decision, emphasizing that the amount paid by the respondent was incurred wholly and exclusively for the purpose of conducting its business. The Court cited precedent to establish that if an expense is found to be for the business's benefit, it qualifies for deduction under the Income-tax Act.

The Court noted that the respondent's liability and entitlement to continue mining operations were contingent on the compromise reached, making the expenditure necessary for business operations. The judgment highlighted that the Tribunal's finding on the expenditure being for the business's purpose was crucial, and as such, the High Court's refusal to direct the Tribunal to refer the question was justified. The Court concluded that the deduction was admissible under the relevant section of the Income-tax Act, affirming the decision to dismiss the appeal and uphold the costs.

In summary, the Supreme Court upheld the decision regarding the deductibility of the expenditure, emphasizing the business necessity and purpose behind the payment. The judgment reinforced the principle that expenses incurred exclusively for business purposes are eligible for deduction under the Income-tax Act, supporting the High Court's refusal to refer the legal question back to the Tribunal.