Commercial expediency allows deduction of tax-adviser fees incurred to facilitate business assessment proceedings.

Professional fees paid to an income-tax adviser for representing the assessee in assessment proceedings were treated as deductible business expenditure under section 10(2)(xv). The court applied the broader test of commercial expediency, holding that expenditure need not directly earn profits if it is incurred to facilitate the carrying on of the business. Fees incurred to secure a reasonable and legitimate assessment were regarded as connected with the business as a continuing commercial undertaking, because tax liability must be ascertained before profits can be effectively applied or carried forward. The deduction was therefore allowed in favour of the assessee.

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Issues: Whether professional fees paid to an income-tax adviser for representing the assessee in assessment proceedings before the Income-tax Officer are deductible as expenditure laid out wholly and exclusively for the purpose of business under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expression "for the purpose of such business" in section 10(2)(xv) is wider than the older formulation restricting allowance to expenditure incurred solely for earning profits. The governing test is commercial expediency, and expenditure need not be shown to have been incurred for the direct purpose of earning profits. If the outlay is incurred to facilitate the carrying on of the business, even indirectly, it may still be wholly and exclusively for the purpose of the business. Fees paid to secure a reasonable and legitimate assessment affect the business as a continuing commercial undertaking, since profits cannot be effectively applied or carried forward until the tax liability is ascertained. Such expenditure is therefore connected with the business character of the assessee and not merely with a personal tax liability.

Conclusion: The fees paid to the income-tax adviser were an admissible deduction under section 10(2)(xv) and the question was answered in favour of the assessee.

Ratio Decidendi: Expenditure incurred on grounds of commercial expediency to facilitate the carrying on of a business is deductible under section 10(2)(xv) even if it is directed to ascertaining or reducing tax liability and does not directly earn profits.

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