Business expenditure test excludes legal and accountancy fees incurred to resist or reduce tax liability, with deduction denied.

Legal and accountancy s incurred to resist or reduce a tax assessment were held not to be expenditure laid out wholly and exclusively for the purposes of business under section 10(2)(xv) of the Indian Income-tax Act, 1922. Where the payments were connected with proceedings concerning earlier years and were directed at meeting tax liability rather than carrying on the business, the statutory deduction test was not satisfied. The deduction for fees paid to chartered accountants and lawyers for appearances before the Income Tax Investigation Commission was therefore not allowable, and the issue was answered against the assessee.

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Issues: Whether expenditure incurred towards fees of chartered accountants and lawyers for appearances before the Income Tax Investigation Commission was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expenditure was incurred in connection with proceedings relating to earlier years and was aimed at meeting or reducing tax liability rather than at carrying on the business. Expenditure of this nature was treated as not laid out wholly and exclusively for the purposes of the business, and therefore did not satisfy the statutory test for deduction.

Conclusion: The deduction was not allowable and the question was answered against the assessee.

Ratio Decidendi: Legal and accountancy expenses incurred to resist or reduce a tax assessment are not expenditure laid out wholly and exclusively for the purposes of business and are not deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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