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TMI Blog1995 (2) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ments taken out in the souvenirs published by the Delhi Flying Club Ltd., and the AICC Souvenir Committee incurred wholly and exclusively for the assessee's business ?" The assessee is a duly registered firm following the mercantile system of accounting and the accounting period ended on March 31, 1977. The firm filed its return on July 27, 1977. The assessment year in question is 1977-78. The assessee was appointed as a sole distributor by its principal Indian Tobacco Co. Pvt. Ltd. Two major payments, involving an amount of Rs. 15,000 paid to the Delhi Flying Club Ltd., New Delhi, and Rs. 40,000 to the Souvenir Committee of the AICC, were held to be inadmissible on account of advertisement expenses by the Assessing Officer. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 30, 1979, annexure-B, confirmed the Income-tax Officer's order. The assessee, therefore, came before the Appellate Tribunal. The Tribunal found that there was no indication that the substantial increase of expenditure on account of advertisement had been dictated by requirements of the business of the assessee for the year under consideration and in view of the fact that for the earlier years, the expenditure incurred by the assessee on account of advertisement was considerably low, the Appellate Tribunal concluded that the assessee had failed to satisfy that the expenditure was incurred wholly and exclusively for the purpose of the business and, ultimately, dismissed the appeal, referring to one of its earlier decisions in the case of Jy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether the payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment of expenditureis incurred for the purpose of the trade of the assessee, it does not matter that the payment may inure to the benefit of a third party (Usher's Wiltshire Brewery Ltd. v. Bruce [1914] 6 TC 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness" is wider in its scope than the expression "for the purpose of earning profits". Explaining the same, the Supreme Court in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, has observed as follows : The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day-to-day running of a business but also the rationalization of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed by the Income-tax Officer, but pending an appeal by the assessee to the Appellate Assistant Commissioner, as regards other matters, the Income-tax Officer issued notice under section 34 of the Indian Income-tax Act, 1922, to include the aforesaid sum which he had allowed. The Appellate Assistant Commissioner disallowed this claim and the Tribunal agreed with him. On a reference, the High Court held that on the facts of the case the contribution to the Indian National Congress was not an expenditure incurred wholly or exclusively for earning the profits within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922, and it was not an allowable deduction. As has been explained by the Supreme Court, from the legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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