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TMI Blog1962 (4) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... bank as a deduction in the year 1952-53. It was disallowed by the authorities below, but on a reference to this court, this court held that that loss was allowable under section 10(1). The decision of this court is reported in Nainital Bank Ltd. v. Commissioner of Income-tax [1961] 43 ITR 90. We are, however, not concerned with that amount in this income-tax reference. In regard to the loss of jewellery and ornaments pledged with the bank the assessee's case was that it had lost all hope of recovery of these articles notwithstanding the fact that the dacoits had been apprehended. The case of the assessee was that there was pressure on the bank by the pawners who demanded settlement of their respective accounts and in the interest of business and for reasons of commercial expediency the bank settled with some of the constituents in 1953-54 and with others in 1954-55. The manner in which the settlements were arrived at was this: Where the market value of the pledged property at the time of the pledge was more than the amount which had been advanced on the security of these ornaments, the excess was paid to the pawner and where it was less, the balance was recovered from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been impelled by business considerations, but in the view of the Tribunal it could not be claimed as a loss under section 10(1). The Tribunal also relied on a decision of the Supreme Court in Badridas Daga v. Commissioner of Income-tax [1958] 34 ITR 10; [1959] SCR 690. That was a case of embezzlement of certain sums of moneys by an employee in a money-lending business. In that case a claim was made for the deduction of that amount alternatively under section 10(2)(xi), 10(2)( xv) and 10(1). The Supreme Court overruled the claim under the first two provisions but allowed it under the last provision. In doing so it laid down two principles which are material for our purposes. The first principle is that even though section 10(2) enumerates various items which are admissible as deductions they are not exhaustive of all allowances which can be made in ascertaining the profits of a business taxable under section 10(1), and further that profits and gains which are liable to be taxed under section 10(1) are what are understood to be such under the ordinary commercial principles. It also held that when a claim is made for a deduction for which there is no specific provision in section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t voluntarily, the conclusion reached by it that the loss was not allowable as a deduction under section 10(1) was correct. We now come to a consideration of the claim for deduction under section 10(2)(xv). Under that section what can be claimed as a deduction is expenditure laid out or expended wholly and exclusively for purposes of business. The Tribunal overruled the claim under this provision on the ground that normally expenditure is an outgoing, that here there was no expenditure incurred by the assessee and that nothing went out of its till. All that the assessee did was to remit certain debts due to it from its constituents. In other words it deliberately decided not to realise what, under the law, it was entitled to realise. This, according to the Tribunal, did not amount to expenditure, and the claim was not allowable under section 10(2)(xv). We must concede that expenditure is a positive act of laying out or spending money; there must be an outgoing from the assessee's fund. The negative act of forbearing to realise something is not an expenditure-. It is an expenditure, if before the act, the money belonged to the fund of the person said to incur the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the loans. Since it had made entries in its accounts about the advance of the loans it had to make an entry about the receipt of those loans in order to square up the accounts. The moment it made entries in its accounts about having notionally received them, it could not be said to be a mere case of its forbearance to realise them. It did not actually write off the amounts as irrecoverable or even as unrealised; when it adjusted the amounts against the amounts that it had decided to pay to its constituents as the price of their ornaments it could not be held to be a case of mere writing off of the amounts as irrecoverable or as unrealised. What it did was really to make entries about the receipt of the amounts of the loans from the constituents and about its having paid to them the value of their ornaments. There was, therefore, expenditure though notionally it was expenditure within the meaning of section 10(2)(xv). The expenditure consisted of the payment of the value of the ornaments and came out of its fund through entries in its accounts. An expenditure must be a voluntary act; the loss caused by the dacoity was not a voluntary act and was, therefore, not an expenditure; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's business. What is required is the actual fact of the expenditure having been incurred wholly and exclusively for the purpose of the business and not that it was obligatory to incur the expenditure wholly and exclusively for the purpose of the business. Whether the bank was legally bound to incur the expenditure or not was, therefore, irrelevant. An expenditure can be wholly and exclusively laid out or expended for the purpose of a business without its being obligatory according to the law or absolutely necessary or unavoidable. Business considerations or business expenditure cannot always be equated with legal rights and legal obligations. In business one has very often to make concessions in order to preserve the goodwill of its clientele. In this connection we might usefully refer to an English decision in Cooke v. Quick Shoe Repair Service [1949] 30 Tax Cas. 460. In this case the assessee purchased a shoe repair business. The agreement of purchase provided that the vendor should discharge all liabilities of the business outstanding at the date of the sale. The vendor failed to do so, and the assessee, in order to preserve the goodwill and to ensure supply of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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