Penalty for unlawful import cannot be treated as actual cost or deductible business expenditure.

Penalty paid in lieu of confiscation for importing goods without authorisation was held not to form part of the actual cost of the goods. The payment arose from the assessee's own breach of customs law and was therefore neither a purchase-cost component nor expenditure wholly and exclusively laid out for business purposes. It was consequently not deductible in computing business profits, and the issue was decided against the assessee and in favour of the Revenue.

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Issues: Whether the amount paid as fine or penalty in lieu of confiscation of imported goods could be treated as part of the actual cost of the goods and allowed as a deductible item in computing business profits.

Analysis: The goods were imported without authorization and were liable to confiscation. The amount paid was a penalty arising from the assessee's own violation of customs law. Such a payment could not be regarded as part of the purchase cost of the goods, nor as expenditure wholly laid out for the purposes of business.

Conclusion: The amount was not includible in the actual cost of the goods and was not deductible in the computation of business profits. The question was answered in the affirmative, in favour of the Revenue and against the assessee.

Ratio Decidendi: A penalty paid for the assessee's own breach of law does not form part of the actual cost of goods and is not an allowable business deduction.

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