Commercial expediency test governs provisional sales tax payments, which remained deductible despite later excess adjustment.

Sales tax paid under provisional assessment was treated as a lawful business expenditure because it discharged an existing statutory liability and reflected the assessee's established accounting practice. The test under rule 12 of Schedule I of the Excess Profits Tax Act is commercial expediency and the circumstances prevailing when payment is made, not later adjustments or the fact that the amount was ultimately found excessive. Payments made to avoid default consequences were therefore not unreasonable or unnecessary, and the deduction was allowed against the revenue.

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Issues: Whether sales tax paid under provisional assessment, though later found to be in excess of the final liability, was expenditure unreasonable or unnecessary having regard to the requirements of the business and therefore disallowable under rule 12 of Schedule I of the Excess Profits Tax Act.

Analysis: The payments were made in discharge of a lawful statutory liability arising under the sales tax law and were part of the assessee's established method of accounting and tax payment. The test under rule 12 is whether the expenditure is reasonable and necessary having regard to the requirements of the business, judged by commercial expediency and the circumstances then prevailing, not by later legalistic objections or subsequent developments. Payments made to satisfy an assessment and to avoid default consequences cannot be treated as unreasonable merely because they were later adjusted or resulted in a temporary excess payment.

Conclusion: The sales tax payments were deductible and were not hit by rule 12 of Schedule I of the Excess Profits Tax Act; the answer was against the revenue and in favour of the assessee.

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