1966 (9) TMI 46

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....return for the assessment year 1952-53 the loss of currency notes as a permissible deduction. The departmental authorities disallowed the claim. But the claim was allowed by the High Court of Allahabad and that order was confirmed by this court : see Commissioner of Income-tax v. Nainital Bank Ltd. In regard to the loss of jewellery the bank settled the claims of the constituents who had pledged their jewellery. The terms of settlement were these : when the market value of the jewellery pledged exceeded the amount advanced, the difference was paid by the bank to the constituent : when the market value of the jewellery was less than the amount advanced, the difference was recovered from the constituent. Under the adjustments made in this ....

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....e. The Commissioner of Income-tax has appealed with certificate granted by the High Court under section 66A(2) of the Income-tax Act. In these appeals counsel for the Commissioner raised two contentions : that by writing off either partially or wholly the amounts due from its constituents in its books of account the bank did not expend or lay out expenditure within the meaning of section 10(2)(XV); and that, in any event, the expenditure was not laid out wholly and exclusively for the purposes of the business of the bank. In its normal meaning, the expression "expenditure" denotes "spending" or "paying out or away", i.e., something that goes out of the coffers of the assessee. A mere liability to satisfy an obligation by an assessee i....

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....o him, and the bank admitted liability to pay to the constituent the value of the jewellery pledged with it. When the bank paid to the constituent the difference between the value of the jewellery pledged with it and the amount due by the constituent, the bank in effect paid the value of the jewellery against payment by the constituent of the amount due by him. In making payment of that difference the bank in truth laid out expenditure equal to the value of the jewellery pledged. It was urged by the Commissioner that the bank was under no legal liability to pay to the constituents the value of the jewellery pledged with it. It was said that the bank was, as a pledgee, a bailee of the jewellery and was in law required to take as much care....

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....mpensation for the loss of jewellery pledged with it. But such a stand might very well have ruined its business, especially in the rural areas in which it operated. The bank had evidently two courses open : to enforce its rights strictly according to law, and thereby to lose the goodwill it had built up among the constituents, or to compensate the constituents for loss of their jewellery, and maintain its business connections and goodwill. In choosing the second alternative, in our judgment, the bank laid out expenditure for the purpose of its business. Paying to the constituents the price of the jewellery stolen in a robbery or a burglary was therefore expenditure for the purpose of the business. There can be no doubt that the expenditure ....