Business deduction limits exclude criminal defence costs for a partner, even where acquittal may incidentally benefit firm reputation.

Litigation expenditure incurred in defending a partner against criminal prosecution for alleged Foreign Exchange Regulation Act contravention was held not to be laid out wholly and exclusively for the firm's business under section 10(2)(xv) of the Indian Income Tax Act, 1922. Expenditure on civil proceedings to protect business interests may qualify, but defence costs for a partner facing a personal criminal charge were treated as directed to avoiding conviction and imprisonment, not to advancing the assessee's business. A partner was not treated as an employee of the firm, and any incidental benefit to the firm's reputation did not change the character of the outlay. The deduction was disallowed.

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Issues: Whether litigation expenditure incurred in defending a partner against criminal prosecution for alleged contravention of the Foreign Exchange Regulation Act was an allowable deduction under section 10(2)(xv) of the Indian Income Tax Act, 1922.

Analysis: The allowable deduction under section 10(2)(xv) requires the expenditure to be laid out wholly and exclusively for the purpose of the assessee's business. Expenses incurred in civil litigation to protect business interests may qualify, but the present claim concerned defence costs in a criminal prosecution. The prosecution related to a personal criminal charge against a partner, and the object of the expenditure was to save him from conviction and imprisonment. A partner is not an employee of the firm, and defence costs incurred for a partner in such circumstances cannot be treated as expenditure wholly and exclusively for the firm's business. The fact that acquittal may have helped the firm's reputation did not alter the character of the expenditure.

Conclusion: The expenditure of Rs. 6,000 was not an allowable deduction under section 10(2)(xv) and the answer to the referred question was in the negative.

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