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TMI Blog1966 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred by payment of mamool and what was described as wayside expenses and that disallowance of certain sums out of larger amounts claimed to have been paid as interest on borrowings for business purposes was not justified. The Tribunal on appeal by the assessee found in its favour on all these matters. This reference of the following questions comes before us under section 66(2) of the Income-tax Act, 1922 : "1. Whether the sums of Rs. 5,813, Rs. 4,415, Rs. 3,011 and Rs. 3,579 do not constitute income of the assessee assessable to tax ? 2. Whether the alleged expenditure of the assessee purporting to be on mamools and wayside expenses is an admissible deduction in the computation of the assessee's income? 3. Whether the disallowance of the sums of Rs. 10,139, Rs. 5,311 and Rs. 1,226 out of the interest payable by the assessee on amounts borrowed by it is not justified? " It is convenient to consider together the first two questions. The assessee got commission or rebate on its purchase of petrol and diesel oil and also received the proceeds of sale of tyres, etc., tubes and empty barrels. The assessee maintained no accounts for these receipts. Actually the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of mamool and wayside expenses. This was on the ground that the assessee failed to prove the expenditure claimed to be deducted. The Tribunal, however, found that in the very nature of the expenditure, there could not be any documentary evidence and that, therefore, the expenditure was inevitable if the assessee had to run its business and that, having regard to the large collection and the incomes returned and the normality of other expenses, it did not consider that the amounts claimed to have been expended by the assessee were unreasonable. The Tribunal having said that went on to add : " In the super-technical sense tips could be characterised as presents and are not connected with the business and that they are illegal, but we will be failing to take note of the realities of the situation. These are greases to run the bus business smoothly. " For the periods subsequent to March 31, 1956, the Tribunal further said that though the resolution of the board of directors did not give a title to the manager and the cashier to the commission, it would prefer to interpret the resolution as one enhancing their salary with a view to establish good public relation and to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the cashier. We do not see why the board of directors could not from a business point of view pass such a resolution. Further, as we consider, it is not a case where the Tribunal could be said to have acted on no evidence. On the other aspect of the argument for the revenue, there is of course authority for the view that expenses on legitimate or illegitimate acts in order to earn income in any illegal business are eligible for deduction: Mann v. Nash (H. M. Inspector of Taxes) and Master of National Revenue v. Olva Diana Eldridge. Rowlatt J. in the former case was of opinion that trade or business for purpose of levy of income-tax is not confined to lawful trade or business but the charge attaches to income from what may be described as illegal trade or business. Counsel for the assessee in that case asked whether the State kept its revenue eye open and its eye of justice closed but the learned judge did not feel the force of the observation, for it would have made no difference if the State kept both its eyes open and prosecuted the man for the lottery there and taxed him for the profits at the same time. He was inclined to the view that this sort of consideration was mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go by the factual observations of the Tribunal. As we said, the Tribunal has remarked that such expenditures as are sought to be deducted in this case are inevitable if the assessee has to carry on its business. Learned counsel for the revenue addressed arguments to us on the assumption that the expenditures sought to be deducted constituted improper or illegal acts and that expenditures incurred even in a lawful business are not eligible for deduction. One view may be that if profits derived from an illegal business are chargeable to tax, by the same logic the expenditure, be it illegal or improper, incurred in order to make such profits may legitimately be allowed as deduction. If the acts involved in the expenditure are in contravention of law, even so it may be a matter for consideration whether for purposes of revenue, it should really matter in considering and allowing deductions as business expenditure. But in the circumstances of this case, we are of the view that we are not called upon to decide this question. Assuming without deciding that expenditure incurred in illegal acts in the course of making profits in a lawful business is not a permissible deduction, neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment. It is a matter of business prudence. There is nothing illegal for a private company to advance moneys to its directors. In the absence of any positive materials that the moneys borrowed had been utilised for some non-business purposes we consider that the department is not justified in disallowing any portion of the interest paid in all these years. " The contention of the revenue before us is that the concluding part of the observation of the Tribunal just extracted shows that it failed to realise that the burden was on the assessee to prove that the moneys borrowed had not been utilised for non-business purposes. We do not think that the Tribunal made any such mistake. The Tribunal, on the figures before it of borrowings by the assessee in each accounting year, of the advances made to the directors without interest as well as the figures of amounts due from the assessees to certain other concerns in which some of the directors had interest and on which no interest was paid, found that the diversion of the borrowed money for advancing to the directors should have taken place in the years earlier to September 30, 1955. There is no question of the Tribunal misplacing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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