Page 13 - DTPA Journal December 21

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 The expenditure should be incurred during the Commissioner Of Income-Tax 1966 AIR 1250
previous year. has held as under: -
 The expenditure should not be of personal “The nature of the expenditure or outgoing must
nature. be adjudged in the light of accepted commercial
practice and trading principles. The expenditure
 The expenditure should have been incurred
must be incidental to the business and must be
wholly or exclusively for the purpose of the
necessitated or justified by commercial
business or profession.
expediency. It must be directly and intimately
 The business should be started connected with the business and be laid out by

 The expenditure should not be any illegal the taxpayer in his character as a trader. To be a
purpose or violative of any law of the land. permissible deduction, there must be a direct and
intimate connection between the expenditure
There are plethora of judgements where it has been
and the business”
held that expenses incurred wholly and exclusively
for the purpose of business or profession is a The Hon’ble Rajasthan High Court in the case of
principal requirement for acid test. Some of the Commissioner of Income Tax vs Rajasthan Spg.
important judgements are given as under: - And Wvg. Mills Ltd. (2005) 198 CTR Raj 96has
held as under:
the Hon’ble Apex Court approving the observation
of ATHERTON’s case - 1926 AC 205 in the matter “Expression ‘wholly and exclusively’ does not
denote ‘necessarily’. The word ‘wholly’ refers to
of EASTERN INVESTMENT LIMITED vs
quantum of expenditure. The word ‘exclusively’
COMMISSIONER OF INCOME TAX reported
refers to motive, objective or purpose with which
in (1951) 20 ITR 1, held:
the particular expense has been incurred.
“a sum of money expended, none of necessity and Ordinarily, it is for the assessee to decide whether
with a view to a direct and immediate benefit to the any expenditure should be incurred in the course
trade, but voluntarily on the grounds of of its or his business. Such expenses can be
commercial expediency, and in order indirectly to incurred voluntarily and without necessity. If it is
facilitate the carrying on of the business, may yet incurred for promoting the business and to earn
be expended wholly and exclusively for the the profits, the assessee can claim the deduction”
purposes of the trade”, can be adopted as the best In general parlance, it is said that since the
interpretation of the crucial words of Section expenses have been made through banking mode,
10(2)(xv). The imprudence of the expenditure and the party is identifiable the expenses should be
its depressing effect on the taxable profits would allowed U/s 37(1)of Income Tax Act, 1961 against
not deflect the applicability of the section. The acid business income. But apart from this, the assessee
test, “did the expenditure fall on the assessee in may also be asked by the assessing officer to prove
this character as trader and was it for the purpose the rendering of services. How the AO may come
of the business”. to conclusion that services have been rendered or
not is explained in the following illustration: -
The Hon’ble Apex Court in another case of
Travancore Titanium Products Ltd vs Suppose, A claims in the return that he has paid RS
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