Business expenditure deduction fails where auditor defence costs are personal, not wholly and exclusively incurred for company business.

Reimbursement by a company of its auditors' defence costs in disciplinary proceedings was not deductible as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. The court applied the statutory test that the payment must be laid out wholly and exclusively for the purposes of the business and must not be capital or personal expenditure. Because the proceedings concerned the auditors' own conduct in certifying accounts, and did not affect the company's trading activity, assets, or reputation, the expenditure was treated as personal to the auditors rather than incidental to the company's business. Authorisation in the articles of association did not satisfy the tax deduction test.

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Issues: Whether reimbursement by the company to its auditors of expenses incurred in defending disciplinary proceedings initiated by a shareholder was an allowable deduction in computing business income under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The allowance under section 10(2)(xv) requires that the expenditure be laid out wholly and exclusively for the purpose of the business and not be capital or personal expenditure. The reimbursement in question related to the auditors' defence in disciplinary proceedings concerning their own conduct in certifying the company's accounts. The proceedings did not affect the company's trading activity, assets, or reputation, and the expenditure was found to be personal to the auditors rather than incidental to the carrying on of the company's business. The fact that the articles of association authorised reimbursement did not by itself establish the statutory test for deductibility.

Conclusion: The amount paid to the auditors was not an allowable deduction under section 10(2)(xv) and the question was answered in the negative, in favour of the Revenue.

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