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 - Whether where amount in question was paid to achieve what was prohibited by law namely, export of wool without having requisite export licence, assessee was not entitled to deduction of said amount - Held, yes FACTS The assessee-firm dealt in raw wool and yarn apart from carrying on other business. In the account year ending 31-3-1955, relevant for the assessment year 1955-56, the export of wool to foreign countries could be done only under a licence to be issued by the Government. During the account year in question the assessee was granted a licence to export to the extent of 22,000 lbs. of wool. Similarly, S.B. and Co. had secured some quota to export wool. The assessee entered into a contract with JCG London, in April, 1954, agreeing to sell 37 bales of Indian wool at 53 d. per lb. The delivery was to be c.i.f. Liverpool. The assessee having exhausted its own export quota entered into an arrangement with S.B. and Co. by virtue of which it was the latter company which exported the bales from time to time which had previously been sold to that company by the assessee in India and were repurchased by the assessee while they were in the course of transit on board the ship and which was ultimately delivered to Messrs J.C.G. Ltd., London, in fulfillment of the agreement between them and the assessee. The sale to S.B. and Co. by the assessee in India was at the rate of Rs. 2 per lb. and the purchase from S.B. and Co. in its turn was at the rate of Rs. 2-3-6 per lb. What the assessee did was that when it sold the goods to S.B. and Co. at the rate of Rs. 2 per lb. it credited its trading account with the sale proceeds at that rate. When S.B. and Co. sold the goods to the assessee at the rate of Rs. 2-3-6 per lb, the assessee debited its trading account with the cost of the said goods at that rate. The difference between these two figures amounting Rs. 6,800 was claimed by the assessee as a deduction while computing its business profits under section 10 of 1922 Act. The Income-tax Officer…

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