COMMISSIONER OF INCOME TAX, DELHI versus DELHI SAFE DEPOSIT CO. LTD.

Citation: [1982] 3 S.C.R. 1 · Decided: 12-01-1982 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

cites 1 · see the full citation network in Lexace

Judgment (excerpt)

1 
COMMISSIONER OF INCOME TAX, DELHI 
v. 
DELHI SAFE DEPOSIT CO. LTD. 
January 12, 1982 
[R.S. PATHAK AND E. S. VENKATARAMIAH, JJ] 
Income Tax Act, 1961-Sec_tion 37-Scopt of-Assessee, partner of a manag~ 
ing agency firm-Managed companY advanced loan to another /ir"1 at tM instance 
ofapartnerof the'firm-Loan turned out to be a bad debt-Loss of managed 
A 
B 
company partly made good by assessee~Reimbursed amount, if could be claimed 
C 
as deduction under section 37, 
The assessee was a partner of a firm of managing agents. At the instance 
of one of the partners of the managing agency firm the managed company 
advanced to another firm a Jarge sum of money as loan. Eventually by reason 
of the failure of the borrower to repay the loao the managed company suffered 
Joss which was made good partly by the assessee and partly by one of its partners. 
D 
Later, the managing agency firm had been reconstituted. 
When the assessee in its returns claimed as a deduction the sum paid by it 
in that year in pai'tial discharge of its liability, the Income Tax Officer disaUowed 
it holding that the assessee was not legally bound to make the payment and 
thc~fore it was not a busiD.css expenditure which could be allowed as a 
deduction. 
E 
The Appellate Assistant Commissioner affirmed the order of the Income 
Tax Officer on the grounds that (a) the loss was actually the loss of a firm which 
was no more -in existence; (b) the loss 
had been borne by the asscsaee on 
personal considerations and (c) the loss was a loss of the managing agency and 
not of the partners concerned. 
Accepting the assessee's appeal the Tribunal held that even if there was a 
change in the constitution of the managing agency firm the assessee's liability as 
a partner had not ceased, that tho payment could not be treated as one 
made on personal considerations and that th.o asseasee had made the payment 
in question purely on business considerations with the sole object of maintaining 
its busiD.ess connection which was yielding profit. 
The High Court answered the reference in favour of the assessee. 
Dismissing the appeal, 
F 
G 
HELD : The true teot of. expenditure laid out wholly and exclusively for 
the purpoaes or trade or business is that it is incurred by the assessee as inci-
H 
dental to its trade for the purpose of keeping tho trade going and of making it 
r•Y and not in any other capacity than of a trader. (6 D·E) 
A 
B 
c 
2 
SUPREME COURT REPORTS 
[ 1982] 3 s.c.R. 
In the instant case the expenditure was rightly held to be deductible under 
s. 37 of the Act. Th~ assessee incurrCd the eXpenditure to avoid any adverse effect 
on its reputation, to protect the managing agency which was an income earning 
apparatus and for retaining it with the reconstituted firm in which the assessee's 
interest was the same as before. It was Jikely that but for-the expenditure, the 
fair name of the assessee would· have been tarnished and the managing agency 
would have been terminated. The expenditure incurred on the preservation of a 
profit earning asset of a business has always been held to be a deductible 
expenditure. The expenditure incurred by the assessce was neither gratuitous 
nor one incurred outside the trading activities of the assessee. [7 C·El 
Ushers's Wiltshire Brewery Ltd. v. Bruce, [1915] A. C. 433, British Insulated 
& Helsby Cables Ltd. v. Atherton, [1926] A. C. 205, Mitchell v. B. W. Noble Ltd. 
[1927] 1 K. B. 719; referred to. 
Commissioner of lncomt! tax, Kera/a v. Malayalam Plantation Ltd .• [19641 7 
S.C.R. 693, followed. 
The fact that the firm has not claimed the expenditure as its own does not 
affect the right of the asmsee to claim deduction in respect of the amount in 
D 
question in its assessment proceedings. [7 H, 8 A] 
E 
F 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1235 of 
!974. 
.Appeal by special leave from the judgment and order dated 
tbe 22nd March, 1973 of the Delhi High Court in Income Tax 
Reference No. 65 of 1968. 
S.C. Manchanda, J. Ramamurthy and Miss A. Subhashini for 
the Appellant. 
S. T. Desai and Bishambar Lal for the Respondent. 
The Judgment of the Court was delivered by 
VENKATARAMIAH, J. This appeal by special leave. is directed 
against the judgment and order dated March 22, 1973 of the Delhi 
High Court in Income-tax Reference No. 65 of 1968 made by the 
Income-tax Appellate Tribunal, Delhi pursuant to an order made 
by the High Court under section 256{2) of the Indian Income-tax. 
Act, J 9(i I

Excerpt shown. Read the full judgment & AI analysis in Lexace.