Business defence expenses deductible where criminal prosecution defence primarily protected reputation and stock-in-trade, not personal immunity.

Expenditure incurred in defending a criminal prosecution arising out of business dealings was treated as deductible where the dominant and substantial purpose of the defence was to protect the assessee's business reputation and the value of stock-in-trade. The Tribunal's finding that any concern about avoiding fine or imprisonment was merely incidental and inseparably mixed with that business purpose was treated as a finding of fact. Applying the requirement that the expenditure be laid out wholly and exclusively for the purposes of the business, the Court upheld allowance of the deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, and answered the reference in the assessee's favour.

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Issues: Whether expenditure incurred in defending a criminal prosecution arising from business activities was allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expenditure was claimed in relation to a prosecution connected with the assessee's business dealings. The Tribunal found that the dominant and substantial purpose of the defence was to protect the assessee's business reputation and the value of his stock-in-trade, and that any element of avoiding fine or imprisonment was incidental and inseparably mixed with that business purpose. Such a finding on the purpose of the expenditure was treated as a finding of fact. Applying the statutory requirement that the expenditure be laid out wholly and exclusively for the purposes of the business, the Court held that the Tribunal was entitled to allow the deduction.

Conclusion: The expenditure was deductible as business expenditure and the answer to the reference was in the affirmative, in favour of the assessee.

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