BINODIRAM BALCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under Section 66 (1) of the INdian INcome-tax Act 1922, at the instance of the assessee, the question for decision as propounded by the tribunal is -

(2.) DURING the assessment proceedings for the assessment year 1953-54, the assessee, M/s. Binodiram Balchand, Indore, claimed to deduct a sum of Rs. 14,000/- on account of fees paid to an income-tax adviser engaged in connection with and for the conduct of assessment proceedings before the Income-fax Officer. The deduction was disallowed by the Income-tax Officer on the ground that the payment said to have been made related to four accounting years. The assessee then preferred an appeal before the Appellate Assistant Commissioner, who disagreed with the view taken by the Income-tax Officer that the payment related to four accounting years. According to the Appellate Assistant Commissioner, the bill for the services rendered was sent by the income-tax adviser on 1st August 1952 which fell in the material year of account and the liability of the assessee to pay the amount of the bill arose on that date inasmuch as the accounts were maintained by the assessee on mercantile basis. The Appellate Assistant Commissioner, however, rejected the claim for deduction on the view that the amount of fees paid to the adviser was an amount for ascertaining and disputing the tax liability before the income-tax authority and was not any sum expended wholly and exclusively for the purpose of the assessee's business, that is to say, for the purpose of enabling the assessee to carry on, and earn profits in, the business. The Appellate Assistant Commissioner relied on the decision of the House of Lords in Smith's Potato Estates, Ltd. v. Balland, (1949) 17 ITR (Supp) I. The assessee then went up in appeal before the Income-tax Tribunal, Bombay. The Tribunal upheld the view taken by the Appellate Assistant Commissioner.

(3.) HAVING regard to the language of Clause (xv) of Section 10 (2), the question raised for determination is really this: Was the expenditure under consideration laid out or expended wholly and exclusively for the purposes of the assessee's business; for, unless it was so, its deduction cannot be allowed. This question must, we think, be answered in the affirmative. The controversy centres round the meaning of the expression "for the purpose of such business, profession or vocation". It must first be noted that Clause (xv) was amended in 1939. Before the amendment, an allowance was given in respect of "any expenditure ...... incur- red solely for the purposes of earning such profits or gains". By the amendment the limitation "incurred solely for the purposes of earning such profits or gains" was deleted and deduction of ' an expenditure was made admissible if laid out "wholly and exclusively for the purpose of such business ........." There is a vast distinction between the language of Clause (xv) as it stands now, and as it stood before it was amended in 1939, The expression "Incurred solely for the purposes of earning such profits or grains" and the expression "laid out or expended wholly and exclusively for the purpose of such business" are not synonymous. The latter expression is much wider in its scope than the former. The difference in the language of the old Clause (xv) was noticed by the Nagpur High Court in the Income-tax Appellate Tribunal, Bombay v. Chhaganmal Mangilal, 1946-14 ITR 206 : (AIR 1946 Nag 94), and it was observed that the aforesaid two expressions were not synccsaymous. In that case it was held that an expenditure may be for the purpose of business though it may not be incurred for earning the profits of the business. So also in Commr. of Income-tax, v. Jagannath Kissonlal, 1956-30 ITR 654 : (AIR 1956 Bom 550) affirmed in (1961) 41 ITR 360 : (AIR 1961 SC 748) the difference between expenditure laid out "for earning the income" and expenditure laid out "for the purpose of the business" was emphasized and it was held that an expenditure may be incurred for the purpose of the business even though it may not help the assessee to earn the income or increase his income. In order, therefore, to see whether a deduction claim- ed under Clause (xv) falls within its terms or not, it would not be legitimate to apply the test whether the expenditure of which deduction is claimed was incurred for the purpose of earning profits in the business.