Business expenditure deduction upheld for operational and compliance services paid to a related secretarial concern.

Expenditure actually incurred by a company to maintain its operations and meet statutory and administrative obligations is deductible if it is laid out wholly and exclusively for earning income and is reasonable on the facts. On these findings, the payment to the assessee's secretarial concern for registrar, secretarial, legal, accounting, banking, taxation and liaison services was not illusory and was properly treated as allowable. The deduction was therefore upheld in favour of the assessee, even though the company's income arose from lease rent rather than active business.

---

---

Issues: Whether the expenditure of Rs. 27,000 paid to the assessee's secretarial concern was deductible in computing the assessee's income for the assessment year 1972-73.

Analysis: The payment was made under an agreement under which the payee rendered registrar, secretarial, legal, accounting, banking, taxation and liaison services. The expenditure was found to be actually incurred and not illusory. The Court held that a company in operation must incur establishment and compliance expenses to function and discharge its statutory obligations, even if its income is derived from lease rent or other sources rather than active business. Such expenditure may be allowable if it is laid out wholly and exclusively for earning income and is reasonable on the facts.

Conclusion: The expenditure was deductible and the Tribunal was right in allowing Rs. 27,000 in favour of the assessee.

Ratio Decidendi: Expenditure actually incurred by a company to keep itself operational and to secure or earn its income is deductible if it is laid out wholly and exclusively for that purpose, even where the company is not carrying on active business.

---