M/S. HAJI AZIZ AND ABDUL SHAKOOR BROS. versus THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY II

Citation: [1961] 2 S.C.R. 651 · Decided: 24-11-1960 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Dismissed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

2 S.C.R. SUPREME COURT REPORTS 
651 
Privy Council judgment Montreal Coke and Manufac-
1960 
turing Co. v. Minister o1 National Revenue (1) but that Th c 
.. 
'J 
• 
e 
omnnssioner 
case can nave no applicat10n to the facts of the pre-
of Income-tax, 
sent case because it was found there as· a fact that the Bombay Oity I 
assessees's financial arrangements were quite distinct 
v. 
from the activities by which they earned their ~ncome "'.fs. Jagannath 
and expenditure incurred in relation to the financing Kissonlal, Bombay 
of their business was not expenditure in the earnii1g 
Kapur J. 
of their income within the statute. 
It was then contended that the loss of the respon-
dent was a capital loss and for this again reliance was 
placed on the judgment of this Court in Madan Gopal 
Bagla's case (2) and particularly on the observation 
at page 559 where Bhagwati, J., quoted with appro-
val the observations of the High Court in the judg- · 
ment but as we have pointed out the facts of that 
case are distinguishable and what was said there has 
no application to the facts and circumstances proved 
in the present case. 
· 
In our view the judgment of the High Court is 
right and we therefore dismiss this appeal with costs. 
Appeal dismissed. 
M/S. HAJI AZIZ AND ABDUL SHAKOOR 
BROS. 
' 
v. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY II 
(J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ.) 
Income-tax-Business deduction-Import of goods by steamer-
Government notification prohibiting import by steamer-Payment of 
penalty in lieu of confiscation-Allowable expenditure-Commercial 
expense-Sea Customs Act, I878 (8 of r878), s. I67(8)-Indian 
Income-tax Act, I922 (II of I9~2), s. ro(a)(xv). 
The appellant firm imported dates from abroad partly by 
steamer and partly by country craft. At the relevant time im-
port of dates by steamers had been prohibited by Government 
(1) [1945] 13 I.T.R. Supp. l. 
(:z) [1956] S.C.R. 551. 
Haji Aziz 
v. 
Commissioner of 
Income Tax 
Kapur]. 
652 
SUPREME COURT REPO~TS 
[1961) 
notification, and the consignments which were imported by 
steamer were, therefore, confiscated by the customs authorities 
under s. 167, item 8, of the Sea Customs Act, 1878, but under 
s. 183 of the Act the appellant was given an option to pay 
Rs. 82,250 as penalty in lieu of confiscation. The appellant paid 
the amount and got the dates released. Before the Income-tax 
authorities it claimed to deduct the amount paid as penalty as 
an allowable expenditure under s. 10(2)(xv) of the Indian In-
come-tax Act, 1922, but the claim was rejected. It was contend-
ed that the order of confiscation was against the stock-in-trade 
and not against the person of the appellant firm and as the 
amount paid was expended for the release of the stock-in-trade, 
it was an allowable expenditure. 
Held, that the amount paid by the appellant by way of 
penalty for a breach of the law could not be considered to be an 
expenditure laid out wholly and exclusively for the purpose of 
the business and was not an allowable deduction under s. 10(2) 
(xv) of the Indian Income-tax Act, 1922. 
Expenses which are permitted as deductions are such as are 
made in order to enable a person to carry on and earn profit in 
the bnsiness. It is not enough that the disbursements are made 
in the course of or arise out of or are concerned with or made 
out of the profits of the business but they must also be for the 
purpose of earning the profits of the business. An expenditure 
is not deductible unless it is a commercial loss in trade and a 
penalty imposed for breach of the law during the course of trade 
cannot on grounds of public policy be said to be a commercial 
expense for the purpose of a business or disbursement made for 
the purpose of earning the profits of such business. 
Case law reviewed. 
CIVIL APPELLATE JURISDIOTION: Civil Appeal No. 
110 of 1957. 
Appeal by special leave from the judgment and 
order dated February 25, 1955, of the former Bombay 
High Court in I.T.R. No. 57/X of 1954. 
N. A. Palkhivala and J. N. Shroff, for the Appel-
lant. 
A. N. Kripal and·D. Gupta, for the Respondent. 
1960. November 24. 
The Judgment of the Court 
was delivered by 
KAPUR, J.-This is an d:ppeal by special leave 
against the judgment and order of the High Court of 
Bombay answering the question submitted to it 
against the assessee firm who is the appellant before 
-
2 S.C.R. SUPREME COURT REPORTS 
653 
us, the reE1pondent being the Commissioner of Income. 
i

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