Business expenditure after cessation of business is not deductible when it only meets past liabilities.

Business expenditure is deductible only where the assessee is actually carrying on a business and the outlay is incurred wholly and exclusively for that business. Where the assessee's sole manufacturing and selling activity had ended on expiry of the lease and sale of stock, expenditure incurred afterwards for retaining staff and making deferred payments to cane growers related only to past liabilities, not to a business then in operation. A temporary lull or a possible future business was not established. The expenditure was therefore not allowable under section 10(2)(xv), and the reference was answered against the assessee.

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Issues: Whether expenditure incurred after the assessee's manufacturing and selling activity had ceased, for maintaining staff and making deferred payments to cane growers, was allowable as business expenditure under section 10(2)(xv).

Analysis: The assessee had carried on only one business, namely manufacture and sale of sugar, and that business had ended when the lease expired and the stock was sold off. The expenditure claimed was only for maintaining staff to make deferred payments for past purchases, not for any business then being carried on. An allowance under section 10(2)(xv) is permissible only where the assessee is carrying on a business and the expenditure is incurred wholly and exclusively for that business. A temporary lull or the possibility of future business was not established on the facts.

Conclusion: The expenditure was not allowable. The answer to the reference was in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: Section 10(2)(xv) applies only to expenditure incurred wholly and exclusively for a business actually being carried on; amounts spent after business cessation for meeting past liabilities are not deductible as business expenditure.

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