I960 November a8. • THE COMMISSIONER OE' INCOME-TAX, WEST BENGAL v. ROYAL CALCUTTA TURE' CLUB (J. L. KAPUR

Counsel for the appellant raised three points before us; (1) The question as to whether an item of expen diture is wholly and exclusively laid out for the pur poses of business or not is a question of fact; (2) the connection between an expenditure and profit-earning of the assessee should be direct and substantial and not remote and (3) to be admissible as revenue expen diture it should not be in the nature of a capital ex pense, i.e., it should not bring into existence an asset of an enduring nature. As to the first question this court has held in Ea11- tern Investments Ltd. v. Commissioner of Income-tax, West Bengal(') that "though the question must be decided on the facts of each case, the final conclusion is one of law". In Commissioner of Income Tax v. Chandulal Keshavlal & Co. (2), this Court said:- " Another test is whether the transaction is pro perly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the car rying on of its business; and it is immaterial that a third party also benefits thereby. (Ea11tern Investment Ltd. v. Commissioner of Income-Tax, (1951) 20 I.T.R. 1). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. In the present case the finding is that it was laid out for the purpose of the assessee's business and there is evidence to support this finding." But those observations must be read in the context. In that case the assessee firm was the Managing Agent of a Company and at the request of the Direotors of (1) [1951] S.C.R. 59~. 598. (2) [1g6o] 38 I.T.R. 6o1, 610. 2 S.C.R. SUPREME COURT REPORTS 733 Z960 v. the latter agreed to accept a lesser commission for the year of account than it was entitled to. It was found Ths Commissione by the Appellate Tribunal there that the amount was of Income-tax, expended for reasons of commercial expediency and west Bengal was not given as a bounty but to strengthen the managed company so that if its financial position Royal Calctttta became strong the assessee would benefit thereby, and on the evidence the Tribunal came to the conclusion that the amount was wholly and exclusively for the purpose of such business. It was on this evidence that the expense was held to be wholly and exclusive- ly laid out for the purpose of the assessee's business and this was the finding referred to. In that case the Tribunal had not misdirected itself as to the true scope and meaning of the words "wholly and exclusively laid out for the purpose of the assessee's business". In the present case the Income-tax Appellate Tribu- nal had misdirected itself as to the true scope and meaning of these words. In our opinion, in the cir- cumstances of this case, it. cannot be said that the finding of the Tribunal was one of fact. Turf Club Kapur 1. The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case. The business of the respondent was to run race meetings on a commercial scale for which it is neces sary to have races of as high an order as possible. For the popularity of the races run by the respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable. It was for this purpose that the respondent started the school for training Indian jockeys. If there were not sufficient number of effi cient Indian jockeys to ride horses its interest would have suffered, and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available. Therefore any expendi ture which was incurred for preventing the extinction 93 734 SUPREME COURT REPORTS [1961) 60 '9 v. Turf Club Kapur J. decided cases. of the respondent's business would, in our opinion, be The Commissioner expenditure wholl:y and exclusively laid out for the of Income-tax, purpose of the busmess of the assessee and would be West Bengal an allowable deduction. This finds support from In Commissioner of Income-tax v. Royal Calcutta Ohandulal Keshavlal & Go. (1 ), this Court held that in order to justify a deduction the disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for the assessee's business; and if the expense is incurred for the purpose of the busi ness of the assessee it does not matter that the pay ment also enures to the benefit of a third party. Another test laid down was that if the transaction is properly entered into as a part of the assessee's legiti mate commercial undertaking in order to facilitate the carrying on of its business it is immaterial that a third party also benefits thereby. In British Insulated and Belsby Gables v. Atherton('), Viscount Cave L. C. held that a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commer cial expediency and in order indirectly to facilitate the carrying on of the business may yet be expended wholly and exclusively for the purpose of the trade. In a case more recently decided Morgan v. Tate & Lyle Ltd. (8 ) the assessee company was engaged in sugar refining business and it incurred expenses in a propa ganda campaign to oppose the threatened nationalisa tion of the industry. It was held by the House of Lords by a majority that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on its business and earning profits, the expense was an admissible deduc tion being wholly and exclusively laid out for the pur pose of the company's trade. Lord Morton of Henry. ton said: "Looking simply at the words of the rule I would ask: "If money so spent is not spent for the purpose of the company's trade, for what purpose is it spent?" If the assets are seized, the company can no longer (1) (1g6o) 38 I.T.R. 601, 610. (2) [1926] A.C. 205. (3) [1955] A.C . .,, / 2 S.C.R. SUPREME COURT REPORTS 735 . e very existence o carry on the trade which has been carried on by the use of these assets. Thus the money is spent to pre- Th c --. . e ommissioner of Income-ta"· See also Strong & Co. v. Woodifield( 1), the observations West Bengal of Lord Davey; and Smith v. Incorporated Council of Law Reporting (g). , t d ,, e company s ra e . f th z96o . v. Royal Calcutta Turf Club . Kapu 1 1. 1 C ounsel for the appel ant relied upon t e Judgment of the Privy Council in Ward & Co. Ltd. v. Commis- ), but that decision proceeds on a sioner of Taxes (3 different statute where the words were of a very res- trictive character, the words being: h " ..................... Expenditure or loss of any kind not exclusively incurred in the production of the assessable income derived from that source ............ ". This case was distinguished in Morgan v. Tate & Lyle(') on the ground that the language of the New Zealand statute was much narrower than the language of r. 3A in England. Reference was also made by the appellant to Boar "land v. Kramat Pulai Ltd. (5 In that case DiJ'.ectors ). of three Companies engaged in tin mining in Malaya incurred expenditure on printing and circulating to shareholders a pamphlet containing remarks of the Chairman of the Company. The pamphlet was an attack on the policy and acts of the Socialist Govern ment and it was held that the question whether the money was wholly and exclusively laid out or expend ed for the purpose of trade within the meaning of rules applicable to the question was one of law but on a consideration of the question it was held that the expenditure was not solely incurred with that object. It is not necessary to discuss that case at any length because what was held in that case was that the pam phlet was not wholly and exclusively for the purpose of the company's trade. . Applying the law, as laid down in those cases, to the present case the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent's business because if the (1) [19o6] A.C. 448, (3) [1923)] A.C. 1.45· (2) (1914] 3 K.B. 674. (4) [1955] A.C. 21. (5) [1953] 2 All E.R. 1122. 736 SUPREME COURT REPORTS [1961] '96° - . . ommissioner b supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possi- le. Thus the money was spent for the preservation . Th C e of Income-tax West Bengal' of the respondent's business. v. As to the third point there is no substance in the Royal Calcutta submission that the expenditure was in the nature of a capital expense because no asset of enduring nature Turf Club Kapur J. was being created by this expense. In our opinion the High Court has rightly held that the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respon dent's business. It was to prevent the threatened In the extinction of the business of the respondent. result this appeal is dismissed with costs. Appeal dismissed. November ag. K. R. C. S. BALAKRISHNA CHETTY & SONS & CO. v. THE STATE OF MADRAS (J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.) Sales Tax - Claim of exemption. by licensee-If conditional upon observance of conditions and restrictions-Ma4J'as General Sales Tax Act, I939 (Mad. IX of z939), s. 5. The appellants, who were dealers in Cotton yarn, obtained a license under the Madras General Sales Tax Act, 1939 (IX of 1939). Section 5 of that Act exempted such dealers from pay ment of sales tax under s. 3 of the Act subject to such restric tions and conditions as might be prescribed, including the condi tions as to licenses and license fees. Section 13 required a licen see to keep and maintain true and correct accounts of the value of the goods sold and paid by him. Rule 5 of the General Sales Tax Rules provided that any person seeking exemption under s. 5 of the Act must apply for license in Form 1 which made the license subject to the provisions of the Act and the rules made thereunder. The appellants on surprise inspection were found to maintain two separate sets of accounts, on the basis of one of which they submitted their returns and the other