TMI Blog1968 (6) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... settling each year's assessment irrespective of the fact whether there was any appeal or not in respect of a particular year. Out of the sum of Rs. 24,000 a sum of Rs. 8,000 was paid in the preceding year and was allowed by the Income-tax Officer as a deduction for the assessment year 1961-62 ; the assessee paid the balance of Rs. 16,000 and claimed the amount as a deduction under section 10(2)(xv) of the Act. In respect of the assessments for the years 1948-49 to 1953-54 Messrs. K. C. Bose Co. conducted the cases on behalf of the assessee before the Income-tax Officer, while the appeals before the Appellate Assistant Commissioner and the Tribunal were conducted by an advocate of this court to whom separate fees were paid. For the assessment years 1954-55 to 1956-57 Messrs. K. C. Bose Co. appeared before the Income-tax Officer and also conducted the appeals filed on behalf of the assessee before the Appellate Assistant Commissioner, but there were no further appeals to the Tribunal. With regard to the assessment years 1957-58 to 1959-60 Messrs. K. C. Bose Co. conducted the cases before the Income-tax Officer and also the appeals before the Appellate Assistant Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties from a broader point of view. Numerous authorities were cited before us. But for the purpose of the present reference we shall restrict ourselves only to a few which appear to be strictly relevant. In Smith's Potato Estates Ltd. v. Bolland, the company was a subsidiary company of Smith's Potato Crisps (1929) Ltd. The parent company was assessable to excess profits tax in respect of the profits of its subsidiary. The Commissioner of Inland Revenue, acting under section 32 of the Finance Act, 1940, disallowed in the computation of profits of the subsidiary company for the period ending March 31, 1941, the excess over pound 3,500 of the remuneration paid to one Mr. Young, the general manager of the subsidiary company. Both companies appealed to the Board of Referees and were successful in getting the sum of pound 3,500 increased to pound 5,800. The subsidiary company incurred legal and accountancy costs in the preparation and prosecution of that appeal and claimed to deduct them in computing its profits for income-tax purposes. The claim of the subsidiary company as well as the claim by the parent company to deduct the said costs in computing the profits of the subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y if not mainly in his capacity as a taxpayer, and for the purpose of securing that his liability as a taxpayer is assessed at the correct amount, and cannot be said to be wholly and exclusively laid out for the purposes of his trade." Viscount Simon and Lord Oaksey did not agree with this view. Viscount Simon has stated: " It seems to me that it is essential for the proper carrying on of a trade that the trader should know what portion of his profits in a given year is left to him after the revenue has taken its share by taxation. If, therefore, he considers that the revenue seeks to take too large a share and to leave him with too little, the expenditure which the trader incurs in endeavouring to correct this mistake is a disbursement laid out for the purposes of his trade. If he succeeds he will have more money with which to earn profits next year. It is true that the result of his success is to reduce the tax he has to pay alternatively, one may say that the result is to show that the profit of the year's trading left to him after paying tax is greater than the revenue was willing to admit but to my mind the purpose was a trading purpose and nothing else. The trade is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered. The expense in this case was not a capital investment, it was incurred not to distribute but to increase and in that sense to earn the profits. On the other hand, if it is to be held that such expenses are not deductible, what is to be said of the costs of audit which the Companies Acts make necessary, or of that part of the cost of book-keeping which is used in the preparation of such an audit, or of accounts for taxation ? They are not incurred for the purpose of earning the profits of the trade in the limited sense contended for by the Crown." It is clear, therefore, that one point of view is that expenses incurred in conducting proceedings connected with the assessment of tax are not deductible expenses inasmuch as such expenses are incurred by the assessee not wholly and exclusively for the purpose of his trade but partly, if not mainly, as a taxpayer. And the other point of view is that this expenditure is incurred for the purpose of carrying on and earning profits in the trade, for a reduction in the amount of tax increases the fund in the trader's hands after tax is paid and promotes the carrying on of his trade and the earning of his trading profits. We have gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew these expenses are expense " for the purpose of the business" in the wider sense the Supreme Court has understood this expression. We have, however, to consider the Supreme Court's decision in Travancore Titanium Products Ltd. v. Commissioner of Income-tax. In this case the question arose as to whether the amount of wealth-tax paid by an assessee was business expenditure deductible under section 10(2)(xv) of the Wealth-tax Act, 1957. The Supreme Court expresses the view that the nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles ; the expenditure must be incidental to the business and must be necessitated or justified by commercial expediency ; it must be directly and intimately connected with the business and must be laid out by the taxpayer in his character as a trader ; and to be a permissible deduction, there must be direct and intimate connection between the expenditure and the business, ie., between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business. Mr. Mukherjee, learned counsel for the Commissioner, contends that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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