Deductibility of parent-company expense reimbursements turns on exclusive business purpose and revenue character

Reimbursement of common head-office administrative expenses to a parent company is deductible when the payment is incurred wholly and exclusively for the subsidiary's business and is revenue in nature. The court accepted that the parent company merely rendered services to subsidiaries, including financial assistance, surety support and business advice, and that the apportionment of shared expenses was fair and reasonable because the subsidiary would otherwise have incurred similar costs itself. The separate taxable identity of the parent company did not prevent deduction where the expenditure represented the subsidiary's contribution for services actually received.

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Issues: Whether the amount reimbursed by the assessee-company to its parent-company towards central office administrative expenses was deductible as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The decisive question was whether the expenditure was laid out wholly and exclusively for the assessee's business and whether it was of a revenue character. The parent-company did not carry on its own trading business and merely rendered services to its subsidiaries, including arranging overdraft facilities, standing surety, advancing funds without interest, and giving technical and business advice. The Tribunal found that the apportionment of the common expenses was fair and reasonable and that the assessee would otherwise have had to incur similar expenditure itself in London. The Court accepted that the expenditure was the assessee-company's contribution towards the cost of services actually rendered for its business, and distinguished authorities dealing with expenditure incurred for the parent-company's own purposes.

Conclusion: The amount was an allowable deduction under section 10(2)(xv) and the question was answered in favour of the assessee.

Ratio Decidendi: A reimbursement of common office expenses paid to a parent-company is deductible where the expenditure is incurred wholly and exclusively for the subsidiary's business and is revenue in nature, even though the parent-company is a separate taxable person.

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