Demurrage for delayed import clearance held deductible when paid to secure release and preserve stock-in-trade.

Demurrage paid to port authorities for delayed clearance of imported goods was treated as compensation for use of port facilities and storage, not as a penalty for breach of law. Because the goods were detained for non-conformity with the import licence, the payment was made to secure release and preserve stock-in-trade for the manufacturing business. The court held that the expenditure was incurred on grounds of commercial expediency and wholly and exclusively for business purposes, so it was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

---

---

Issues: Whether demurrage paid to port authorities for delayed clearance of imported goods, which had been detained because they did not conform to the import licence, was deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: Demurrage was held to be compensation for the use of port facilities and for storage and safe custody of the goods beyond the free period, not a fine for infraction of law. The character of the payment was not altered by the fact that the goods had been detained due to non-conformity with the import licence. The payment was made to secure release and preserve stock-in-trade for use in the manufacturing business, and was therefore incurred on grounds of commercial expediency and in the assessee's character as a trader.

Conclusion: The demurrage was an allowable deduction as expenditure laid out wholly and exclusively for the purposes of the assessee's business, and the question was answered in favour of the assessee.

Ratio Decidendi: A payment made by a trader as compensation for delayed clearance and use of port facilities, incurred to preserve stock-in-trade and for business purposes, is deductible if it is laid out wholly and exclusively for the purposes of the business and is not a penalty for breach of law.

---