TMI Blog2001 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ual position so far as the two questions referred are concerned, essentially is as follows: The assessee is a manufacturer of cement. It had appointed Cement Distributors Limited (in short "CDL") as its sole selling agent. A claim was made by the assessee that Rs.1.75 per M.T. was being paid to the CDL as commission. The Assessing Officer held that the amount as paid was on the higher side and Re.1 per M.T. would be the permissible deduction. For coming to this conclusion, reference was made to the arrangement made with one Goyal Traders who are being paid at more or less the said rate. Holding that any thing paid beyond Re.1 per M.T. was not for commercial expediency, the balance amount involved was disallowed. It was also noticed that the assessee was borrowing money from financial institutions and was paying interest which amounted to Rs.14,59,816. Though a substantial amount was lying with the CDL under the head "Deposits collected towards disputed sales tax", the same was allowed to be retained by the CDL without being brought into account by the assessee. Had the amount in question been brought into account by the assessee substantial interest could have been saved. Taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers or the Department and the liability, if any, to be discharged was that of the CDL. Coming to the first question it has to be noted that the expenditure was claimed under section 37 of the Act. In order to qualify for deduction it has to be shown that the expenses were laid out or expended wholly and exclusively for the purpose of the business. The present section 37 is almost pari materia with section 10(2) of the Indian Income-tax Act, 1922 (in short the "old Act"). Considering the true import of the expression 'wholly and exclusively" it was observed by the apex court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261, that the same does not mean "necessarily". Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under the relevant provision even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business or profession. The word "wholly" refers to the quantum of expenditure, while the word "exclusively" refers to the motive, objective and purpose of the expenditure. An expenditure to which one can not apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how the businessman himself treats a particular item of expenditure. The term "commercial expediency" is not a term of art. It means everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the Revenue (see CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC); J.K. Woollen Manufacturers v. CIT [1969] 72 ITR 612 (SC); Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 (SC) and CIT v. Panipat Woollen and General Mills Co. Ltd. [1976] 103 ITR 66 (SC)). But it must not suffer from the vice of collusiveness or colourable devices. It is to be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that ultimately the amount was held on account of the assessee, we find that the admitted position was that the CDL was handling the sales tax matters in regard to cement sales, sales tax returns were filed by it and sales tax assessments were made by the sales tax authorities on it, i.e., the CDL in regard to cement sales of the company. The CDL was collecting necessary sales tax as also the security deposit. There was a dispute as regards levy of sales tax on packing and freight elements. While the sales tax authorities were demanding and levying sales tax on two items, the assessee was challenging the levy and since there was no final decision on the issue, deposits were being collected by the agent, i.e., the CDL to cover the possible levy of sales tax on packing and freight elements. Therefore, the stand of the assessee all through was that in case of final adjudication, the amount was either to be refunded to the customers or was required to be paid to the state exchequer if the levy was upheld. The deposit was collected from the customers and was in the nature of a contingent liability relating to levy of sales tax. Allowability of interest is covered by section 36(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on the amounts borrowed by it, and that to the extent to which it would have been in a position to collect interest on the out standings due to it from others, it could not be permitted to claim as an allowance interest paid by it to outsiders. The High Court held that such a view was clearly unsustainable and observed that it is not the requirement under section 10(2)(iii) that the assessee must further show that the borrowing of the capital was necessary for the business so that if at the time of the borrowing the assessee has sufficient amount of its own the deduction could not be allowed and the High Court further took the view that in deciding whether a claim of interest on borrowing can be allowed the fact that the assessee had ample resources at its disposal and need not have borrowed, was not a relevant matter for consideration." (underlined for emphasis) If all the requisite conditions for allowance of interest are fulfilled, it is not possible and open to the Revenue to make a part disallowance, unless there is a positive finding recorded that a part of the amount borrowed was not used for the purposes of the business. As was observed in Madhav Prasad's case [197 ..... 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