DHARAMVIR DHIR. versus THE COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA

Citation: [1961] 3 S.C.R. 359 · Decided: 05-12-1961 · Supreme Court of India · Bench: J.L. KAPUR

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Judgment (excerpt)

3 S.C.R. SUPREME COURT REPORTS 
359 
DHARAMVIR DHIR. 
v. 
THE COMMISSIONER OF INCOME-TAX, 
BIHAR & ORISSA 
(J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.) 
Income-tax-Deductions-Expenditure iticurred for purpose of 
trade-Assessee paying share of profits in return of advance made-
Whether allowable deduction-Indian Income-tax Act, I922 (II of 
z922), ss. IO (2)(iii) and zo(2)(xv). 
The assessee entered into a contract for working certain 
collieries. As he did not have the requisite funds, he entered 
into an agreement with M whereunder M was to advance a sum 
upto Rs. rt lacs, but could withdraw the money at any time and 
stop further advances and was not liable for any losses; the 
assessee was to pay interest on the advances at 6% per annum 
in addition to a sum equivalent to II/16th of the net profits of 
the business. In pursuance of the agreement M made advances 
to the assessee and the assessee paid interest and n/16th of his 
net profits to M. The assessee claimed these amounts paid to 
M as allowable de<luctions under s. I0[2)(iii) or under s. 10(2)(xv) 
of the Income-tax Act. The amount paid as interest was allow-
ed but the other sums paid were not allowed on the ground 
that these sums were not wholly and exclusively laid out for 
the purpose of the business. 
Held, that the assessee was entitled to the deductions 
claimed. The case had to be decided according to the tenor of 
th.e agreement and the circumstances of the case. In order to 
justify the deduction of the ·sum given up had to be.for .reasons.· 
of commercial expediency; it may be voluntary but so !orig as it 
was incurred for the assessee's benefit, e.g., the carrying on of 
his business, the deduction was claimable. In the present case 
there was nothing to show that the assessee could have made 
any better arrangements or would not have lost the contract 
had he not entered into the agreement with M. Therefore in a 
commercial sense the payments were an expenditure wholly and 
exclusively laid out for the purpose of the business. 
Commissioner of Income-tax v. Chandulal Keshavlal, [1960] 
38 I.T.R. 6or, followed. 
Commissioner of Income-tax, Bombay v. M/s. Jaggannath 
Kissonlal, [1961] 2 S.C.R. 644, M/s. Haji Aziz & Abdul Shakoor 
Bros. v. The Commissioner of Income-tax, [r961] 2 S.C.R. 651, and 
Strong v. Woodijield, (1906) 5 T.C. 215, relied on. 
Pondicherry Railway Company v. Commissioner of 1ncome-
tax, Madras, (193I) L.R. 58 I.A. 239, distinguished. 
Union Cold Storage Co. Ltd. v. Adamson, (1931) 16 T.C. 293, 
f anuary 5. 
360 
SUPREME COURT REPORTS 
(1961] 
I960 
Tata Hydro-Electric Agencies Ltd., Bombay v. The Commissioner of 
Income-tax, Bombay Presidency, (1937) L.R. 64 I.A. 215, Robert 
Dharam,.•fr Dhir Ad1tie & Sons' Collieries, Ltd, v. Commissioners of Inland Revenue, 
v. 
(1924) S.C. 231, Commissioner of Income-tax, Bombay !'residency v. 
The Commissioner Tata Sons Ltd. [1939] 7 I.T.R. 195· The Indian Radio and Cable 
of Incon"·tax, Communications Company Ltd. v. The Commissioner of focome-tax, 
Lihnr & Orissa Bombay, [1937] 5 I.T.R. 270, British Sugar Man11Jaeturers Ltd. v. 
Harris, [1937] 21 T.C. 528, referred to. 
CIVIL APPELLATE JURISDICTION: 
Civil Appeals 
Nos. 448 and 449 of 1959. 
Appeals by special leave from the judgment and 
order . dated February 12, 1958, of the Patna High 
Court in Misc. Judicial Cases Nos. 679 and 680 of 
1955. 
A. V. Viswanatha Sastri and Naunit Lal, for the 
appellant (In both the appeals). 
A. N. Kripal and D. Gupta, for the Respondent (ln 
both the appeals). 
1961. January 5. The Judgment of the Court was 
delivered by 
Kapur J. 
KAPUR, J.-'These appeals by the a.ssessee are 
brought against two judgments and orders of the High 
Court of Judicature at Patna in Income-tax references 
under s. 66(2) of the Income Tax Act answering the 
questions in the negative and against the assessees. 
The questfons were: 
(I) "Whether on the facts and circumstances of 
this case R·s. 72,963- 12-0 was a revenue expenditure 
deductible under section l0(2)(iii) or under section 
10(2)(xv) of the Indian Income Tax Act?'' 
(2) "Whether on the facts and circumstances of 
this case Rs. 76,526-1-3 was a revenue expenditure 
deductible under section 10(2)(iii) or under sec-
tion 10(2)(xv) of the Indian Income-tax Act?" 
The facts of the appeals are these: The appellant 
was an employee of M/s. Karam Chand Thapar & 
Bros. and for each of the accounting years relating to 
the assessment years 1947-48 and 1948-49 his 

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