Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1958-59 - Assessee-company borrowed shares of certain trusts and pledged said shares with Commissioner, to secure stay of recovery of tax - Thereupon, assessee paid commission to trusts which was claimed as an allowable business expenditure - Revenue authorities disallowed assessee's claim - Whether since stay of recovery of tax had nothing to do with assessee's business, amount spent on it in form of commission could not be allowed as deductible business expenditure - Held, yes FACTS The assessee-company borrowed shares of certain trusts which were pledged with the Commissioner, in order to secure stay of recovery of Income-tax. The assessee paid commission to the trusts and claimed that amounts of commission had been wholly and exclusively expended for the purpose of its business and were, therefore, deductible from its business income. The claim was not allowed by the ITO and the disallowance was confirmed by AAC and Tribunal. On reference : HELD There was no evidence that the business of the assessee was threatened with stoppage or was otherwise to suffer if the stay had not been obtained. Prima facie, stay of recovery of tax had nothing to do with its purpose. Therefore, the impugned amount paid as commission was not deductible as business expenditure. Note : The decision was in favour of the revenue. CASES REFERRED TO CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), Dalmia Dadri Ltd. v. CIT [1972] 86 ITR 580 (Punj.), India Cements Ltd.v. CIT [1966] 60 ITR 52 ; (SC), Jeewanlal (1929) Ltd. v. CIT [1969] 74 ITR 753 (SC), Maharajadhira Sir Kameshwar Singh v. CIT[1961] 42 ITR 774 (Pat.) and Mannalal Ratanlal v. CIT [1965] 58 ITR 84 (Cal.). JUDGMENT At the instance of the assessee, the following two questions of law have been referred for our opinion: "1.Whether, on the facts and in the circumstances of the case, the assessee's profits and gains earned in the calendar year 1957 were assessable to tax for the assessment year 1958-59 at the rates prescribed by the Finance Act, 1958,…

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