Business deduction denied for litigation expense not incurred wholly and exclusively for business purposes under tax law

Assessment of the income fell within Section 9 of the Income-tax Act, 1922, following the earlier governing decision relied on by the Court. Expenditure incurred in defending litigation to resist a claim for death duty was not an allowable business deduction because it was incurred by the assessee in his capacity as representative of his father's estate, not wholly and exclusively for the business. The foreign business income could therefore not be reduced by that litigation expense, and both referred questions were answered against the assessee.

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Issues: (i) Whether the assessment was to be made under Section 9 of the Income-tax Act, 1922. (ii) Whether the expenditure incurred in defending litigation to resist a claim for death duty was an allowable deduction in computing foreign business income.

Issue (i): Whether the assessment was to be made under Section 9 of the Income-tax Act, 1922.

Analysis: The answer to the first referred question was governed by the earlier decision relied upon by the Court, under which the relevant assessment fell within Section 9.

Conclusion: The assessment was held to be made under Section 9 of the Income-tax Act, 1922.

Issue (ii): Whether the expenditure incurred in defending litigation to resist a claim for death duty was an allowable deduction in computing foreign business income.

Analysis: The litigation was undertaken by the assessee as a person representing his father's estate, and the expense was not incurred wholly or exclusively for the purpose of the business. It was therefore outside the business and not deductible.

Conclusion: The expenditure was held to be not allowable as a deduction in computing the foreign business income.

Final Conclusion: Both referred questions were answered against the assessee, and the revenue position was sustained.

Ratio Decidendi: Expenditure incurred in litigation that is not laid out wholly and exclusively for the purposes of the business is not deductible as business expenditure.

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