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 1955-56 - Assessee imported goods on basis of licence allegedly issued by Controller of I mports and Exports - Licence was found to be forged and person who helped assessee to get licence was prosecuted and sentenced to jail - Penalty was levied on assessee and goods were confiscated and assessee paid penalty for release of goods - Whether isolated act of assessee causing and infranction of law entailing penal consequences by way of payment of fine either for release of confiscated goods or for personal penalty imposed could neither be said to be incidental to nature of business which assessee carried on or it could be said to be expended wholly and exclusively for purpose of business - Held, yes FACTS The assessee imported goods under a licence purported by issued by the concerned authorities. The licence was later found to be forget and the import was illegal. The person who had procured the licence for the assessee was prosecuted and sentenced to jail. The assessee was, however, let off only with penalty. The authorities confiscated the goods in consonance with the provisions of section 167(8) of the Sea Customs Act and the assessee having been given an option under section 183 of that Act, paid a sum for release of goods. He also so paid a personal penalty. The assessee claim for deduction of those amounts under section 10(2)(xv) of the 1922 Act or in the alternative under section 10(1) of the 1922 Act was disallowed by the authorities. The Tribunal held on an appraisal of all the materials on record that the cumulative effect of all the circumstances led to the irresistible conclusion that the imports made by the assessee were not so in good faith. Therefore, it upheld the lower authority's order. On reference : HELD A deduction which is neither within the term of the prohibition nor expressly or impliedly allowable in the exclusive definition of its area must be allowed if it is, on the facts of a given case, a proper debit item to be charged against the incoming of the trade in…

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