Business expenditure deduction denied where selling agency had no operative business and only staff was maintained

Expenditure on maintaining a selling agency staff was not deductible under Section 10(2)(xv) of the Income-tax Act, 1922 where the agency had no business activity during the relevant period. The deduction was available only for amounts laid out wholly and exclusively for business purposes, and only if the business was in existence in the accounting year. Because control orders prevented the mill from lawfully using private selling agents, mere continuation of an office and staff after business had effectively ceased did not amount to carrying on the business. The expenditure was therefore not allowable.

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Issues: Whether the expenditure incurred for maintaining the selling agency staff during the period when the agency carried on no business was an admissible deduction under Section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The relevant deduction provision allows expenditure laid out wholly and exclusively for the purposes of a business, but only where the business was in existence during the accounting year under assessment. The assessee's selling agency could not carry on any business because, by reason of the Sugar Control Order, 1942, and the continued operation of the Government of India Sugar and Sugar Products Control Order, 1943, it was not lawfully open to the mill to use private selling agents. Mere maintenance of an office and staff, without any business activity and after the business had effectively ceased for the relevant period, did not amount to carrying on that business for purposes of deduction.

Conclusion: The expenditure was not deductible under Section 10(2)(xv) of the Income-tax Act, 1922, and the answer to the referred question was in the negative.

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