Page 12 - DTPA Journal December 21

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ANALYSIS OF EXPENSES ALLOWABLE

UNDER SECTION 37 OF I.T. ACT, 1961

PARAS KOCHAR, ADVOCATE

Business expenses mean any expenses which are Explanation 1—For the removal of doubts, it is
spent wholly and exclusively for the purpose of hereby declared that any expenditure incurred by
business. Such expenses should have commercial an assessee for any purpose which is an offence or
expediency. Business expenses which are revenue which is prohibited by law shall not be deemed to
in nature, are allowable as deduction u/s 37of have been incurred for the purpose of business or
Income Tax Act, 1961. Business expenses which profession and no deduction or allowance shall be
are capital in nature are not claimed as deduction made in respect of such expenditure.
against income of current year of the assessee. The
Explanation 2.—For the removal of doubts, it is
expression “for the purpose of the business” is
hereby declared that for the purposes of sub-
essentially wider than the expression “for the
section (1), any expenditure incurred by an
purpose of earning profits”. It covers not only the
assessee on the activities relating to corporate
running of the business or its administration but
social responsibility referred to in section 135 of
also measures for the Preservation of the business
the Companies Act, 2013 (18 of 2013) shall not be
and protection of its assets and property.
deemed to be an expenditure incurred by the
Personal expenses are out of the purview of assessee for the purposes of the business or
business expenses. However, business expenses profession.
incurred for any unlawful full business is not
(2B) Notwithstanding anything contained in sub-
allowed to be claimed as deduction against
section (1), no allowance shall be made in respect
business income.
of expenditure incurred by an assessee on
Section 37 of the Income Tax Act, 1961is a advertisement in any souvenir, brochure, tract,
residuary section for allowability of business pamphlet or the like published by a political
expenditure and the same is given below: party”

”37. (1) Any expenditure (not being expenditure of As per above section, following conditions are
the nature described in sections 30 to 36 and not required to be fulfilled for Allowability of
being in the nature of capital expenditure or business expenses -
personal expenses of the assessee, laid out or
 Such expenditure should not be covered under
expended wholly and exclusively for the purposes
the specific section i.e., sections 30 to 36of
of the business or profession shall be allowed in
Income Tax Act, 1961.
computing the income chargeable under the head
“Profits and gains of business or profession”.  Expenditure should not be of capital nature

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