Business-purpose criminal defence costs remain deductible when incurred to protect business interests, not personal motives.

Expenditure incurred in criminal proceedings was deductible where it was honestly and reasonably laid out to protect the assessee's business interests, including business profits, assets, and rights under managing and selling agency arrangements. The criminal form of the proceedings did not, by itself, prevent allowance under section 10(2)(xv) of the Income-tax Act, 1922. On the facts found, the Tribunal's own conclusion negatived any purely personal motive, and there was no sound basis for limiting the deduction to one-third. The expenditure was therefore allowable in full.

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Issues: Whether the expenditure incurred by the assessee in connection with the criminal proceedings against Ramgopal Ganpatrai was allowable as a deduction under section 10(2)(xv) of the Income-tax Act, 1922, and whether the Tribunal was justified in restricting the allowance to one-third of the amount claimed.

Analysis: The expenditure was incurred by the assessee in the context of an existing business relationship and was directed towards protecting the assessee's business interests, including the preservation of business profits, the securing of assets, and the protection of rights arising from the managing agency and selling agency arrangements. The fact that the prosecution was criminal in form did not, by itself, make the expenditure non-deductible. Where the expenditure is shown to have been honestly and reasonably incurred for business purposes, it may fall within the statutory expression "laid out or expended wholly and exclusively for the purpose of such business". On the facts found, the Tribunal's own conclusion negatived any purely personal motive, and no sound basis was shown for confining the allowance to one-third.

Conclusion: The criminal-litigation expenditure was allowable in full under section 10(2)(xv), and the restriction of the allowance to one-third was not justified.

Ratio Decidendi: Expenditure incurred in criminal proceedings is deductible under section 10(2)(xv) if, on the facts found, it is wholly and exclusively laid out for protecting or preserving the assessee's business interests, and the deductibility is not reduced merely because the proceedings are criminal in nature.

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