Business expenditure deduction: full cotton purchase price allowed where payment was real and wholly for business purposes.

Where cotton purchase expenditure is actually incurred, paid at the full ceiling price, and directly connected with business, the revenue cannot disallow part of the payment merely by questioning commercial reasonableness or by attributing a notional third-party benefit. The deduction inquiry is confined to whether the expenditure was in fact incurred and whether it was laid out wholly and exclusively for business purposes. On those facts, the assessee was held entitled to deduct the full purchase price, and the partial disallowance was not justified.

---

---

Issues: Whether the assessee was entitled to deduction of the full cotton purchase price, and whether the revenue could disallow part of the payment on the ground that the expenditure was not wholly and exclusively laid out for business.

Analysis: The purchases were found to have been actually made and the full ceiling price was held to have been paid. Once the expenditure is real and has a direct nexus with the business, the revenue cannot split up the payment and substitute its own view of commercial prudence or reasonableness. The jurisdiction under the relevant deduction provision is confined to testing whether the expenditure was in fact incurred and whether it was laid out wholly and exclusively for the business.

Conclusion: The assessee was entitled to the deduction and the disallowance was not justified.

Final Conclusion: The reference was answered in favour of the assessee, and the revenue's attempt to treat part of the purchase price as non-business expenditure failed.

Ratio Decidendi: Where expenditure is found to have been actually incurred for business purposes, and is wholly and exclusively laid out for that purpose, the revenue cannot disallow any part of it merely on considerations of reasonableness or by attributing a notional benefit to a third party.

---