Deduction of issue management expenses requires examination of the expenditure's character before allowance under income-tax law.

The Supreme Court held that the High Court should not have allowed deduction of issue management expenses by relying only on the rule of consistency without examining the nature and allowability of the expenditure on merits. The Court said the character of the expenditure had to be determined before granting deduction under the Income-tax Act, 1961, and that this raised a substantial question of law under Section 260-A. The High Court judgment was set aside and the matter remitted for fresh consideration in accordance with law.

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Issues: Whether the High Court was justified in allowing the assessee's claim for deduction of issue management expenses without examining the nature of the expenditure, and whether a substantial question of law arose for consideration.

Analysis: The appeal arose under Section 260-A of the Income-tax Act, 1961. The record showed that the assessee had succeeded before the High Court on the basis of the rule of consistency. The Court held that the High Court ought to have examined the character and allowability of the issue management expenses on merits, since the question whether such expenditure was deductible required determination. On that basis, it held that a substantial question of law did arise.

Conclusion: The impugned High Court judgment was set aside and the matter was remitted for fresh consideration in accordance with law.

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