TMI Blog1943 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... siness in crackers to sell several kinds of cracker at the rates given in the Schedual thereto. The respondent did not abide by the terms of this agreement and sold his crackers at rates lower than those given in the schedule, where upon Salia Mohammad Haji Ibrahim Sait filed a suit for damages of ₹ 5,000 against the respondent. The High Court of Judicature at Madras on its original said in suit C. S. No. 146/34 awarded damages of ₹ 5,000 as well as the court costs to the plaintiff in that case. The respondent paid the damages and incurred expenses for defending the suit amounting to ₹ 1,203. The respondent claimed this sum of ₹ 6,203 as a business expenses, which the Appellate Assistant Commissioner had allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the trade in the sense that they are really incidental to the trade itself. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with the trade, or is made out of the profits of the trade. It must be made for the purpose of earing the profits was satisfied. The only relevant section under which the expenses could be allowed is Section 10(2)(xii) of the Income-tax Act which is as under :- Such profits or gains shall be computed after makng the following allowance, namely, any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly and exclusively for purposes of trade is to be decided, because one has to attend to the true nature of the expenditure to ask oneself the question, is it a part of the respondents working expenses Is it an expenditure laid out as part of the process of profit-earning or, on the other hand, is it any other The Appellate Assistant Commissioner relied on the observation of Lord Davey in the case of Strong Co., Ltd. v. Woodifield, quoted above. This ruling itself indicates that the expenses should be for purposes of carrying on the business and earning profits in the trade. What is found that this payment of ₹ 6,203 is made not because the respondent has made a profit, but it has no relation either immediate or remote with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to income-tax was made or was to be made. These charges were not expended for the sole purpose of earning profits within the meaning of Section 9(2)(xi) of the Indian Income-tax Act and hence were not permissible deductions thereunder. The expenses claimed as damages in this case, therefore, have really nothing to do with the trade itself. 8. We think, there is much force in the appeal of the Income-tax Officer and disagreeing with the Appellate Assistant Commissioner, we restore the order of the Income-tax Officer disallowing ₹ 6,203 as a business expense. 9. The result is that the appeal is allowed. On the application of the assessee under Section 66(1) of the Indian Income-tax Act (XI of 1922) the Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely for purposes of the assessees business within the meaning of Section 10(2)(xii) of the Act . Section 10(2)(xii) allows the deduction of any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of a business. In Inland Revenue Commissioners v. Warnes Co., Rowlatt, J., said that a loss connected with or arising out of a trade must, at any rate, amount to something in the nature of a loss which is contemplable and in the nature of a commercial loss. In that case, the respondents who were oil exporters were sued for a penalty under the Customs Consolidation Act, 1876, Section 139, as extended by the Customs (War Powers) Act, 1915, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany personally, so far as a company can be considered to be a person, for a breach of the law which it had committed. It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading, for that reason I thing that both the decision of Rowlatt, J., in this case, and his former decision in Inland Revenue Commissioner v. Warnes Co. which he followed, were right, and that this appeal should be dismissed with costs. In the present case, the assessee was not fined for a breach of law, but was made to pay damages for a breach of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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