TaxTMI 
TaxTMI 
2016 (2) TMI 411
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....ement dated October 21, 1982 by and between the appellant and Calcutta Port Trust is an expenditure covered by the Explanation to Section 37(1) of the Income Tax Act, 1961? (ii) Whether in the facts and circumstances of the case the payment of Rs. 6,67,266/- to the Calcutta Port Trust by the Appellant was an expenditure incurred wholly and exclusively for the purposes of the Appellant's business and therefore allowable as deduction under Section 37(1) of the Income Tax Act, 1961, in determining the Appellant's income for the assessment year 2001-02? (iii) Whether the expenditure of Rs. 6,67,266/- incurred by the Appellant as and by way of payment of damages to the Calcutta Port Trust for contravention of contractual obligation by way of encroachment of land adjacent to the demised land, belonging to the Calcutta Port Trust, is an expenditure capital in nature and thus not an allowable expenditure under Section 37 (1) of the Income Tax Act, 1961? (iv) Whether in coming to the conclusion that the payment of Rs. 6,67,266/- by the Appellant to the Calcutta Port Trust was an expenditure covered by the Explanation to Section 37 (1) of the Act and/ or that such expenditur....
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....olly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation -For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." He contended that the explanation disallows any expenditure incurred by the assessed for any purpose which is an offence or which is prohibited by law. He further contends that the amount in question was paid to CPT because the assessee encroached a piece of land belonging to CPT. This act of the assessee, he submits, amounted to an act which is prohibited by law and hence such expenditure cannot be allowed as a deduction. Mr. Chakraborty learned Advocate for the appellant contended that payment of damages is for breach of contract and not on account of any infraction of law and, therefore the same is admissible as expenses having been spent fully and exclusively for the ....
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.... should not be an expenditure of the nature described in Sections 30 to 36; (b) it should not be in the nature of capital expenditure; or personal expenses of the assessee; and (c) it should have been laid out or expended wholly and exclusively for the purpose of the business or profession of the assessee; 11. The phraseology-laid out or expended wholly and exclusively for the purposes of business or profession-embraces within it 'wholly' which refers to the quantum of expenditure and the word 'exclusively' refers to the motive, objective and purposes of the expenditure. The expression 'wholly and exclusively' does not mean 'necessarily'. If an amount is incurred for promoting the business and to earn profits, the assessee can claim deduction therefor even though there was no compelling necessity to incur such expenditure. The test for allowability of an expenditure as a deduction is to judge, whether the expense has been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration and that expenditure was necessitated or justified by commercial expediency. 12. Whenever certain damages are t....
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....allowable deduction. The above issue was also dealt with by the Supreme Court in the Swedeshi Cotton Mills Co. Ltd. -Vs- CIT reported in (1998) 233 ITR 199. The issue before the Supreme Court was regarding deductibility of liability incurred by the assessee for delayed payment of employee's contribution under Section 14B of the Employee's Provident Fund Act, 1952 and the penalty levied on the assessee under the Central Sales Tax Act. The Supreme Court followed its earlier judgement in Prakash Cotton Mills Pvt. Ltd. -Vs- CIT reported in (1993) 201 ITR 684 and held that wherever an amount has been paid by way of damages, the compensatory payment made by the assessee entitles him to claim deduction from the income earned by him and where an element of penal levy is concerned, any such payment made for contravention of law is inadmissible. The Supreme Court in Standard Batteries (supra) reiterated the view taken in Prakash Cotton Mills Pvt. Ltd. -Vs- CIT reported in (1993) 201 ITR 684. Their Lordships in Prakash Coton Mills (supra) had held as follows:- "......Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allo....