Business expenditure deduction for post-transfer bonus liability allowed when the obligation accrued and was enforceable for business continuity.

A bonus liability that accrued only after the transfer of the business, and became legally enforceable under an industrial award and settlement, was treated as revenue expenditure rather than capital outlay. Because the payment was incurred in the course of carrying on the business to secure industrial peace and continuity of operations, it satisfied the test of being laid out wholly and exclusively for business purposes. The liability was deductible in the year in which it actually accrued, and any amount already included in that computation was to be excluded from the later year's assessment.

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Issues: Whether the bonus liability of Rs. 54,140 was allowable as a deduction in computing the assessee's business profits for the assessment year 1952-53, and whether the amount of Rs. 3,204, if already included in that sum, had to be excluded from the later year's computation.

Analysis: The liability for bonus for 1949 and 1950 accrued only after the transfer of the business and became enforceable against the assessee company by reason of the award under the Industrial Disputes Act and the subsequent settlement. The payment was not part of the purchase price of the business and was not a capital outlay. It was an expenditure incurred in the course of carrying on the business, intended to secure industrial peace and continuity of operations, and therefore satisfied the requirement of being laid out wholly and exclusively for the purposes of the business. The earlier years involved only contingent claims, whereas the year of account ending on 31 January 1952 was the year in which the liability actually accrued.

Conclusion: The sum of Rs. 54,140 was allowable as a deduction in the assessment year 1952-53. If Rs. 3,204 was included in that sum, it was to be excluded from the assessment year 1953-54 computation.

Final Conclusion: The reference was answered in favour of the assessee, with the bonus payment treated as deductible business expenditure in the year of accrual.

Ratio Decidendi: A liability that accrues after transfer of a business and is incurred by the transferee in discharge of a legally enforceable obligation for the continuance of the business is revenue expenditure deductible when the liability accrues, and not capital expenditure.

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