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TMI Blog1971 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 10(1) or 10(2)(xi) or 10(2)(xv) of the Income-tax Act ? " The assessee is a public limited company having its registered office at Calcutta. Its principal business consists of manufacturing aluminium ingots, sheets and such other products from aluminium. There is another company known by the name of Aluminium Laboratories Ltd., Montreal, in Canada, hereinafter called the " Montreal company ", which provided the assessee with the technical know-how, engineering services, etc., regarding development of production of the goods. An agreement was entered into on January 31, 1947, between the Montreal company and the assessee. The agreement provided for payment of a retainer fee on an annual basis. There was no condition or stip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the order of the Income-tax Officer was restored. The High Court was of the view that there was a nexus between payment and the business of the assessee inasmuch as it had an indirect bearing upon the technical aid which the assessee had obtained from the Montreal company but was of the opinion that, even if the payment had some connection with the business, it could not be said to be incidental to it as the liability could have been avoided by the assessee if it had deducted at the source the required amount of income-tax from the retainer fee which was payable to the Montreal company. The High Court also considered the question whether the amount paid to the Montreal company could be treated as a bad debt within the meaning of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (2B) : Provided further that nothing in this section shall apply to any payment made in the course of transactions in respect of which a person responsible for the payment is deemed under the first proviso to section 43 not to be an agent of the payee. Section 18(7) : " If any such person does not deduct or after deducting fails to pay the tax as required by or under this section, he, and, in the cases specified in sub-section (3 D) the company of which he is the principal officer, shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax. . . . " Now, the Act contains provisions for collecting taxes in two modes ; one is by direct levy and the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , equitable, legal, contractual or moral to reimburse to you any monies you may have to pay to the Indian taxing authorities." The claim of the assessee principally is two-fold. It is maintained, firstly, that after the refusal of the Montreal company in the matter of reimbursement, the amount of Rs. 1,24,199 was written off as a bad and irrecoverable debt. It was, therefore, deductible under section 10(2)(xi) of the Act. In the section the debt certainly means something more than a mere advance. It is something which is related to business or results from it. To be claimable as a bad and irrecoverable debt it must first be shown as a proper debt (vide A. V. Thomas & Co. Ltd. v. Commissioner of Income-tax). It is well-settled that a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(2)(xv) of the Act. For that purpose the assessee had to establish that the amount in question had been wholly and exclusively laid out for the purpose of its business. Our attention has been invited to a decision of the Bombay High Court in Commissioner of Income-tax v. Pannalal Narottamdas & Co., in which it was held that the amount of penalty imposed not for the fault of the assessee but because be had to pay the same for the purpose of getting the goods released from the customs authorities could be regarded as wholly and exclusively incurred for the purpose of his business. We consider it unnecessary to pronounce on the correctness of this decision. The point which came up for consideration there was altogether different and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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