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 years 1944-45 and 1945-46 - Whether where no business is carried on at all and no expense is incurred wholly and exclusively for purpose of such a business, section 10(2)(xv) of 1922 Act can have no application - Held, yes - Assessee-company carrying on business of manufacture and sale of sugar stopped its business activities - However, it maintained staff necessary for making deferred payments to cane growers - For relevant assessment years, assessee claimed deduction under section 10(2)(xv) of 1922 Act in respect of expenditure incurred on staff - Tribunal rejected assessee's claim - Whether since business activities that assessee was carrying on had ceased, mere fact that he had maintained staff to pay some of cane growers from whom he had purchased cane on credit could not be said to be an expenditure incurred wholly and exclusively for purpose of business - Held, yes - Whether, therefore, Tribunal was justified in rejecting assessee's claim - Held, yes FACTS The assessee-company carried on business consisted of manufacture and sale of sugar. The assessee, however, took on lease a sugar mill. This lease expired on 31-7-1942. The manufacture of sugar admittedly was stopped on the expiry of the lease and the stock of unsold sugar at the time was admittedly cleared off by 30-11-1942.Though accounts were maintained on the mercantile basis the sugarcane was purchased partly on credit and partly for cash and that even after the whole stock of sugar was sold off on 30-11-1942, payments to the cane growers continued right up to the 17-9-1944. The assessee claimed that the expenses incurred after the 30-11-1942, for maintaining the staff necessary for making deferred payments to the cane growers upto the 17-9-1944, should be allowed as expenditure incurred wholly and exclusively for the purpose of their business. The Tribunal disallowed the assessee's claim. On reference : HELD The company carried on only one business, that of manufacture and sale of sugar. The manufacture and sale both were finished,…

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