Commercial expediency allows deduction of payments made to extend a supply contract and complete business performance.

Payments described as liquidated damages for extending a supply contract were held to be allowable business deductions because they were not penalties for breach, but commercial expenditure incurred to keep the contract alive and enable completion. The payment was directly connected with carrying on the business and was made on grounds of commercial expediency, so the sums were deductible under section 10(2)(xv) of the Indian Income-tax Act.

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Issues: Whether the sums paid as liquidated damages for obtaining extension of the supply contract were permissible deductions under section 10(2)(xv) of the Indian Income-tax Act.

Analysis: The payment was made after the Government had agreed to keep the contract alive and extend time for performance. It was not a penalty for breach of contract, but a condition accepted to enable the assessee to complete the contract and earn profits. Such expenditure was directly connected with the carrying on of the business and was incurred on grounds of commercial expediency.

Conclusion: The sums of Rs. 13,517 and Rs. 3,723 were allowable deductions under section 10(2)(xv) of the Indian Income-tax Act, and the question was answered in the affirmative.

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