Illegal payments for confiscated imports are not deductible business expenditure when incurred for breach of law.

An amount paid in lieu of confiscation for importing goods in breach of a prohibition was held not deductible as business expenditure under section 10(2)(xv). The court construed the provision as limited to expenditure incurred in carrying on lawful business, and ruled that a payment made because of a breach of law is not an outlay laid out wholly and exclusively for business purposes, even if it secures release of stock-in-trade. It also rejected any distinction between confiscation of goods and penalty on the owner, treating both as consequences of the same unlawful act. The deduction was therefore disallowed and the reference answered against the assessee.

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Issues: Whether the amount paid in lieu of confiscation for importing goods in breach of a prohibition was an allowable deduction as expenditure wholly and exclusively laid out for the purposes of the assessee's business under section 10(2)(xv).

Analysis: The deduction provision was construed as applying only to expenditure incurred for carrying on business lawfully. Where an amount is paid as a consequence of a breach of law, it is not expenditure incurred in the ordinary course of lawful trade, even if payment secures release of stock-in-trade. A distinction between confiscation of goods and penalty on the owner was rejected, since both are consequences prescribed for the same unlawful act. Expenditure arising from an illegal act cannot be treated as business expenditure merely because it enables the assessee to retain or recover the goods.

Conclusion: The amount was not an allowable deduction under section 10(2)(xv); the reference was answered against the assessee and in favour of the Revenue.

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