COMMISSIONER OF INCOME-TAX, U.P. versus NAINITAL BANK LTD.

Citation: [1967] 1 S.C.R. 348 · Decided: 15-09-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed
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Judgment (excerpt)

COMMISSJO.NER OF INCOME-TAX, U.P. 
v. 
NAINITAL BANK LTD. 
September 15, 1966. 
(J. C. SHAH, V. RAMA5WAMI MID V. BHARGAVA, JJ.J 
Indian /nt:ome-tax Act, 1922, s. 10(2) (xv)--Jewellery p/edgtd with 
bank stolen--Bank crediting cost oj jewellery to constituents accounts and 
setting ofi against such credit amounts advanced to them-Anwunts so 
credited whether expenditure laid Otlt for the purpose of the business. 
Jewellery pledged with the respondent bank by its constituents was 
stolen by dacoi1". 
The bank settled the claims of the constituents 
by 
crediting the value of the jewellery again.st the amounts advanced to the 
constituenl.t. When tho market value of the jewellery pledged exceeded the 
amount advanced the difference was paid by the bank to the constituent; where 
the market ,...iue of the jewellery was les.. than the amount advanced 
the difference was recovered from the constituent. 
Under 
the adjust-
ments made in this manner the Bank in the year 1952 made a totnl oay-
ment of Rs. 48,891 and in the year 1953 the Bank paid Rs. 1,21,760. In 
the relurna for the a=.ment year 1953-54 and 1954-55 the Bank claimed 
in computing its taxable income the amounia;:,c:!: to the eonstituenta. The 
claim was dWllowcd by the assessing and a 
authorities but the High 
Court in reference under s. 66(2) of the Indian Income-tax Act. 1922 
allowed iL 
The Commissioner of lncom<>-tax appealed to this Court by 
cert:ficate. 
It was urged on behalf of the appellant that (I) 
by writing 
off eilbcr partially or wholly the amount& &le from ita conslituents in 
its books of account the Bank merely forbore 
to enforce 
its 
demand 
against it< constituents and such forbearance was not expenditure with-
in the meaning of s. 10(2) (xv) of the Indian Income-tax Act, 1922, (2) 
in any case the expenditure was not laid out wholly and exclusively for 
the purposes of the business since the bank was under no legal obligation 
to pay the cost of jewellery. 
HELD : (i) In il.t normal meaning the expression "expenditure" de-
notes "spending" or "pay:ng out or away" l.t., somethlnJ that goes out 
of the coffers of the a.ssessce. 
A mere liability to satisfy an obligation 
by an a.s- is undoubtedly not "expenditure"; it is only when he satis-
fies the obligation by delivery of ca.sh or property or by settlement of ac-
-.nts there is expenditure. 
But expenditure does not necessarily involve 
actual delivery or paning with money or property. If there are crOSt-
ctaim.~ne by the assessec against a stranger and the other by the stranger 
against the assmee 
and as a result of accounting the balance due only 
ia paid, the amoUDt which is debited against the assessee in the settlement 
Of accounts mar appropriately be termed expendirurc within the meaning 
of •· 10(2) (xv . [350 E-0] 
It could not be said that there was by the settlement.t mere forbear-
ance to recover the amounts 
advanced to the constituents. 
The settle-. 
menta were bilateral : each oon.stituent admitted his liability to repay the 
amount which had been advanced to him, and the Bank admitted liability 
to pay to tho Constituent the value of the jewellery pledged with it. 
WheD 
the Bank paid to the constituent the difference between the value or the 
iewellery pledged wi1h it and the amount due by the comtituent the Bank 
m efteet paid the value of the jewellery against payment by the constitu-
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C.I.T. v. NAINITAL BANK (Shah, J.) 
349 
A 
mt 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. [351 A.CJ 
· 
(ii) The Bank could have if so advised taken its stand strictly on its 
legal obligations and could have recovered the amounts due by the constl-
tuents at the same time denying liability to make any compensation fur 
the loss of jewellery pledged with it But such a stand might very well 
B 
have ruined its business, especlally in the rural areas in which it operated. 
In choosing to compensate the coIIStituents and thus maintaining 
their 
aoodwill the Bank laid out expenditure for the purpose of itS business. 
[351 G-Hl 
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CML APPELLATE JURISDICTION : Civil Appeals Nos. 601 & 
602 of 1965. 
Appeals from the judgment and decree dated April 12, 1962 
of the Allahabad High Court in I.T.R. No: 484 of 1960. 
R. M. Hazarnavis, R. H. Dhebar and R. N. Sachthey, for the· 
appellant (in both the appeals). 
S. T. Desai, B. P. Sjngh and Nawiit Lal,
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