Commercial expediency allows inquiry-related expenditure as deductible business outlay when incurred to protect reputation and business interests.

Expenditure incurred in connection with a Commission of Inquiry was deductible as revenue expenditure because the inquiry also concerned the administration of the assessee-company and the outlay was made to protect its reputation, credit, assets and business interests. The court treated the spending as commercially expedient and not as a penalty for breach of law, holding that the ultimate result of the inquiry was irrelevant. For the same reason, the law department's expenditure linked to the inquiry was also deductible, since it formed part of the overall business-related response to protect the company's interests. The inquiry-related expenditure was therefore allowable as a business deduction.

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Issues: (i) Whether expenditure incurred by the assessee in connection with the Commission of Inquiry was allowable as revenue expenditure; (ii) Whether the amount spent by the assessee's law department in connection with the same inquiry was deductible in computing business profits.

Issue (i): Whether expenditure incurred by the assessee in connection with the Commission of Inquiry was allowable as revenue expenditure.

Analysis: The inquiry was directed not merely against individuals but also into the administration of the affairs of the assessee-company. The assessee was required to produce documents and was entitled to take steps to safeguard its reputation, credit, assets, and business interests. Expenditure incurred honestly and on grounds of commercial expediency for preservation and protection of the business is deductible, and the ultimate result of the inquiry is not decisive. The expenditure was not a penalty for breach of law but was incurred in the course of business to protect the company's interests.

Conclusion: The expenditure was allowable as revenue expenditure and was in favour of the assessee.

Issue (ii): Whether the amount spent by the assessee's law department in connection with the same inquiry was deductible in computing business profits.

Analysis: This expenditure formed part of the same overall outlay incurred to meet the Commission of Inquiry and protect the assessee's business and reputation. Once the principal expenditure was held to be laid out for business protection on commercial expediency, the legal department's expenditure stood on the same footing and was likewise incurred in the assessee's business capacity.

Conclusion: The amount was deductible and was in favour of the assessee.

Final Conclusion: Both questions were answered in favour of the assessee, and the inquiry-related expenditure was held to be an allowable business deduction.

Ratio Decidendi: Expenditure honestly incurred on grounds of commercial expediency for the preservation and protection of a business is deductible as business expenditure, even if incurred in relation to an inquiry or proceeding whose ultimate outcome is irrelevant.

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