TMI Blog1982 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... by special leave is directed against the judgment and order dated March 22, 1973, of the Delhi High Court in Income-tax Reference No. 65 of 1968 made by the Income-tax Appellate Tribunal, Delhi, pursuant to an order made by the High Court under s. 256(2) of the I.T. Act, 1961 (hereinafter referred to as " the Act "). The facts of the case are these : The assessee (the respondent herein) is a public limited company. The assessee was a partner of a firm of managing agents known as M/s. Morari Lal Batra Co. (hereinafter referred to as " the managing agency firm ") which was managing another public limited company called M/s. Bharat Carbon Ribbon Manufacturing Co. Ltd. (hereinafter referred to as " the managed company "). There were in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the assessee was not legally bound to make the payment and hence it was not a business expense that could be allowed under the Act. The AAC before whom the order of assessment was questioned by the assessee affirmed the order of assessment on the above question on three grounds : (a) the amount in question was actually the loss of a firm which was no more in existence; (b) the loss in question had been borne by the assessee on personal considerations; and (c) the loss was the loss of the managing agency firm and not of the partners concerned and since the managing agency firm had not claimed that loss in its return, none of its partners could claim it. When the matter was taken up in appeal before the Income-tax Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on can be treated as an expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee which is admissible as a deduction under s. 37 of the Act. It is no doubt true that the solution to a question of this nature sometimes is difficult to arrive at. But, however difficult the task may be, a decision on that question should be given having regard to the decisions bearing on the question and ordinary principles of commercial trading and of commercial expediency. The facts found in the present case are that the assessee was carrying on business as a partner of the managing agency firm and it also had other businesses, the managing agency agreement with the managed company was profitable source of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in the computation of the income-tax liability of the brewery, Lord Sumner upholding the above claim observed in Usher's Wiltshire Brewery Ltd. v. Bruce [1915] AC 433, 469 (HL), thus: " Where the whole and exclusive purpose of the expenditure is the purpose of the expender's trade, and the object which the expenditure serves is the same, the mere fact that to some extent the expenditure enures to a third party's benefit, say that of the publican, or that the brewer incidentally obtains some advantage, say in his character of landlord, cannot in law defeat the effect of the finding as to the whole and exclusive purpose. " In British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205; [1925] 10 TC 155, 193 (HL), Lord Cav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not in any other capacity than that of a trader. In CIT v. Malayalam Plantations Ltd. [1964] 7 SCR 693 ; 53 ITR 140, 150, Subba Rao J. (as he then was) summarised the legal position, at p. 705, thus: " The aforesaid discussion leads to, the following result : 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 modernization 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 37 of the Act. The next contention of the department is that the payment in question should have been first assessed as a loss in the assessment proceedings of the firm and in the absence of any claim made in the course of such proceedings by the firm, it was not possible to allow its deduction in the assessment of the assessee. Reliance is placed on ss. 187 and 67 of the Act in support of this submission. It is seen that the expenditure in question had not been incurred by the firm. Even if the amount had been paid through the firm by the assessee, it would not be payment of the firm's funds. In the accounts of the firm, there would be a credit and debit entry cancelling each other showing a receipt from the assessee and a paym ..... X X X X Extracts X X X X X X X X Extracts X X X X
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