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 1956-57 - Assessee was carrying on business in export of groundnut oil - Policy of Government in permitting export of said commodity varied from period to period - In 1953, assessee entered into contract with foreign company for export of groundnut oil - Said contract contained guarantee clause - Subsequently, policy of Government with regard to export of groundnut oil was charged as a result of which no quotas for export were at all allotted in second half year of 1953 - Assessee, therefore, could not fulfil export commitments and consequently had to pay certain damages to foreign company - Whether since assessee did not contravene any express or implied prohibition nor was policy relating to exports such an inflexible one that assessee should have known that he could not obtain any licence for export o f commodity either in second half of year 1953 or in first half of year 1954 and fact that manner in which assessee entered into these contracts or stipulations that figured in terms of contract were normal features of conduct of an export trade in commodity of that kind, it could be said that loss incurred by assessee was incidental to and intimately connected with conduct of business of assessee and for purpose of earnings profits for business and was, therefore, allowable as business expenditure - Held, yes FACTS The assessee-company was carrying on the business in the export of groundnut oil. The policy of the Government in permitting exports of this commodity varied from period to period, and it was generally indicated for every half-year. In September and October, 1953 the assessee entered into four sale contracts with a foreign company for export of groundnut oil, the dates of shipment being between December, 1953 and February, 1954. These contracts could have been fulfilled by the company only in the event of an export quota being allotted for the second half-year July to December, 1953. There were guarantee clauses under the said agreement. The assessee was unable to fulfil these…

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