Business expenditure for preserving an excise licence is deductible when paid to keep trade alive, not as punishment.

Payment made to prevent cancellation or suspension of an excise licence was treated as a business expense because it was incurred to preserve the assessee's profit-earning apparatus and continue trade. The analysis distinguished a punitive payment for breach of law from a payment made to keep the business alive; only the latter was regarded as an ordinary incident of business. On that basis, the expenditure was held to satisfy the test of being wholly and exclusively laid out for business purposes and was deductible in computing total income.

---

---

Issues: Whether the amount paid by the assessee for avoiding cancellation or suspension of its excise licence under the Punjab Excise Act, 1914 was an expenditure wholly and exclusively laid out for the purposes of business and therefore deductible.

Analysis: The payment was made to prevent cancellation or suspension of the liquor licence on account of default in paying the licence-related dues. The licence was the basis on which the assessee could carry on business, so the payment was directly connected with the carrying on of trade and with preserving the profit-earning apparatus. A distinction was drawn between a punitive payment for infraction of law and a payment made to keep the business alive; the latter was treated as an ordinary incident of the business. On that footing, the expenditure satisfied the business-deduction test.

Conclusion: The amount was allowable as business expenditure and deductible in computing the assessee's total income.

Final Conclusion: The disallowance was unsustainable, and the assessee succeeded in the appeal.

Ratio Decidendi: A payment made by a trader to preserve the right to continue business, where the expenditure is incidental to the trade and not a punishment for an unrelated infraction, is expenditure wholly and exclusively laid out for the purposes of business.

---