Business expenditure on defending winding-up proceedings was treated as deductible where the company's existence was under threat.

Expenditure incurred to resist winding-up proceedings threatening a company's existence was treated as laid out wholly and exclusively for the purpose of the business under the Income-tax Act, 1922. The wide scope of that phrase was applied to cover spending directed to preserving the business itself, not merely carrying on routine operations. Legal fees and connected travelling expenses were therefore regarded as inseparably linked to the defence of the company's existence and deductible as business expenditure.

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Issues: Whether the legal expense of Rs. 9,000 and the travelling expense of Rs. 1,000 incurred in connection with resistance to winding-up proceedings were deductible under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The expression "wholly and exclusively for the purpose of the business" has wide amplitude and includes expenditure incurred for the preservation of the business itself. Since the winding-up proceedings threatened the very existence of the company, defending that litigation was a business necessity. The amount of Rs. 9,000 was spent in repelling the attack on the company's existence, and the travelling expenses were inseparably connected with that defence.

Conclusion: The expenditure of Rs. 9,000 and Rs. 1,000 was laid out wholly and exclusively for the purpose of the business and was rightly allowed as a deduction.

Final Conclusion: The reference was answered by upholding the allowance of both items as deductible business expenditure.

Ratio Decidendi: Expenditure incurred to defend proceedings threatening the existence of the business is laid out wholly and exclusively for the purpose of that business and is deductible if it is directed to its preservation.

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