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WHAT HAPPENED PROCEDURALLY-

When the assesse filed an appeal before the tribunal than his appeal was heard by two members and
both of them have different opinion as follows-

Judicial Member-His opinion was that both the expenditure is of revenue expenditure and therefore
should be allowed for deduction.

Accountant Member- His opinion was that both the expenditure is of capital account and therefore
could not be allowed as revenue expenditure.

III member- This was the opinion which makes a matter of difference.

He did not go into the question whether the expenditure incurred by the assesse was in the nature of
capital or revenue expenditure but look as a totally different line and held that the contributions were
made by the assesse as a good citizen just as any other person.

He agreed with the accountant member and held that both the amounts of Rs. 22,332 and Rs 50000
were not allowable as deductible expenditure under sec 10(2)(xv).

The assesse thereupon sought a reference to the High Court and on the application of the assesse, the
following question of law was referred for the opinion of the High Court:

“Whether on the facts and circumstances of the case the sums of Rs. 22,332 and Rs, 50,000 were
admissible deductions in computing the taxable profits and gains of the company’s business.” The High
Court accordingly answered the question referred to infavour of the revenue and against the assesse.
The High Court observed that the expenditure incurred by the assesse could not be classified as revenue
expenditure. The view that the High Court had taken was that since “the expenditure was not related to
the business activity of the assesse as such, the tribunal was justified in concluding that it was not wholly
and exclusively laid out for business and the deduction claimed by the assesse therefrom did not come
within the ambit of section 10(2)(xv).”

It was clear that the expenditure incurred by an assesse can qualify for deduction under section 10(2)
(xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfills this
requirement, it is not enough it must further be of revenue as distinct from capital nature.

Two questions therefore arise for consideration in the present appeal:-

Question 1- Whether the sums of Rs 22,332 and Rs. 50,000 contributed by the assesse represented
expenditure incurred wholly and exclusively for the purposes of the business of the assesse.

Question 2- Whether this expenditure was in the nature of capital or revenue expenditure.

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