Law: Income Tax Act, 1922

Section: 10(2)(xvi)

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1952-53 and 1953-54 - Assessee - company engaged in motor transport claimed deduction as business expenditure of monthly premium paid to postal authorities for carrying mails with advantage of making more-trips every month - Whether on facts, it was money employed not for purpose of requiring any concern but for purpose of carrying on concern already in existence with more profits - Held, yes - Whether, therefore, expenditure incurred by assessee was a revenue expenditure allowable under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee-company carrying on business of motor transport, was granted by the postal department a three year contract on payment of a premium to that postal department for carrying mails between two specified places every day. The carrying of mail was associated with extra trips. The mail carrying bus carried the usual full load of passengers in addition to carrying postal mails. As the mail carrying bus had to run punctually it attracted more passengers than the ordinary non-mail passenger bus. The disputed contract was determinable by four months' notice on either side or otherwise in due course of law; and the security deposit was liable to be forfeited for breach of any of the covenants by the assessee. The postal authorities also got the right to rescind or determine the agreement forthwith without any notice to the contractor for failure to perform and observe any of the stipulations and conditions in the contract. The ITO disallowed the expenditure representing payment of the premium treating the same as of a capital nature as it was incurred for getting the contract and it also represented purchase price of the goodwill for carrying Government mail and definite, secured and advantageous trips, or, in other words, for the purchase of opportunity for earning from larger number of trips and that it did not form part of the working expenditure. On appeal, the AAC affirmed the view of the ITO. On second appeal, the Tribunal holding that there was no element of…

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