The court held that a deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922 is only allowed for expenses incurred wholly and exclusively for the purpose of carrying on the assessee's business.

Judgment

S.K. Das, J. : This is an appeal with special leave from an order dated May 29 1956 passed by the Income-tax Appellate Tribunal (Calcutta Bench), Calcutta, disallowing the assessee s claim for deducting a sum of Rupees 1,24,199 odd under the provisions of Section 10(2)(xv) of the Indian Income-tax Act, 1922.

2. The assessee, appellant before us, is a public limited company with its registered office in Calcutta. Its principal business is the manufacture of aluminium ingots, sheets, circles, aluminium alloys, etc, and production of various aluminium or alloy products. Under a deed of agreement dated January 31, 1947 made with the appellant, the Aluminium Laboratories Ltd., Montreal, Canada, a foreign company, having laboratories and research facilities in Canada and United Kingdom, agreed in consideration of an annual retainer fee to provide regularly and diligently technical and engineering informations, advice, and service, etc. to the appellant on the basis of research carried on in their laboratories. The case of the appellant was that such technical and engineering informations, etc. were essential for the maintenance of the standard of its products on a par with those of other competitors in the field. The remuneration which the foreign company had to be paid was payable at Montreal in Canadian dollars. For seven accounting years ending on September 30 each year, from l944-50, the appellant owed to the foreign company on account of technical fees and dues under the Agreement diverse sums amounting to Rs. 2,50,808/- which the appellant duly credited from year to year to the account of the foreign company. Owing to the difficulties of exchange control and regulation the appellant was unable to make actual payment of the bulk of the said sum to the foreign company. On or about March 16, 1951, the Income-tax Officer concerned in assessing the appellant held that (1) the said sum of Rs. 2,50,808/- credited to the account of the foreign company was chargeable under the Indian Income-tax Act; (2) the appellant was liable under Ss. 18(3A) and 18(3B) of the Act to deduct and pay appropriate income-tax and super tax on the sums as and when they were credited to the account of the foreign company and (3) as there was no such deduction and payment the appellant should be deemed to be an assessee in default within the meaning of S 18(7) of the Act. The total income-tax and super-tax on the sums credited as aforesaid amounted to Rs. 1,24,199. 3 nP. The Income-tax Officer gave the appellant time to pay up the said amount on or before March 30, 1951.

3. There was an appeal to the Appellate Assistant Commissioner who held that though the sums payable to the foreign company were chargeable to income-tax, the liability to deduct and pay tax under Ss. 18(3A) and 18(3B) arose not when the sums were credited to the account of the foreign company but at the time, of actual physical payment. He, therefore, set aside the order of the Income-tax Officer.

4. On appeals against the order of the Appellate Assistant Commissioner, both by, the appellant and the Income-tax Officer, the Income-tax Appellate Tribunal, Calcutta Bench, held against the appellant on both the points and restored the order of the Income-tax Officer. In consequence of the said decision and to save itself from the consequences of a drastic recovery proceeding the appellant paid the amount on or about April 16, 1953. However, the appellant, simultaneously took up the matter with the foreign company and requested the company to reimburse the appellant in the matter of the tax paid on behalf of the foreign company. The foreign company, however, repudiated its liability to pay the tax. Thereupon, as a matter of commercial expediency and necessity the appellant treated the sum of Rs. 1,24,199 odd paid to Government as an extra expenditure incurred in its business and claimed a deduction in respect thereof under S. 10(2)(xv) of the Act, in the assessment proceedings for the yea