Customs penalty paid to save imported stock from confiscation was treated as allowable business deduction.

Penalties paid to customs authorities for infringing import control requirements were treated as deductible business expenditure where the assessee had bought the import documents in good faith and paid the amount to secure release of stock-in-trade from confiscation. The payment was regarded as part of the real cost of the imported goods and as expenditure laid out wholly and exclusively for the purposes of business because it preserved trading stock rather than punishing the assessee's own unlawful conduct. On that basis, the amount was allowable in computing business profits under the Income-tax Act, 1922.

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Issues: Whether penalties paid to customs authorities for infringing import control requirements, but incurred to save imported stock-in-trade from confiscation after purchase of documents in good faith, were allowable as a deduction in computing business profits.

Analysis: The amount paid to customs was treated as part of the real cost of the imported goods because the assessee had to incur it to secure release of the goods and prevent confiscation. Expenditure so incurred was also regarded as laid out wholly and exclusively for the purposes of the business, since it was not a penalty for the assessee's own unlawful conduct but a payment necessary to preserve business stock. On that footing, the deduction fell within the business computation provisions of the Income-tax Act, 1922.

Conclusion: The penalty amount was an allowable deduction and the question was answered in the affirmative in favour of the assessee.

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