Case: The Commissioner Of Income-Tax, West Bengal Vs. Royal Calcutta Turf Club

this case, it cannot be said that the finding of the Tribunal was one of fact.8. 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 necessary 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 bot 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 efficient 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 expenditure which was incurred for preventing the extinction of the respondents business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction. This finds support from decided cases. In 1960-38 ITR 601 : (AIR 1960 SC 738 ) 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 assessees business; and if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment 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 assessees legitimate 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 Helsby Cables v. Atherton, 1926 AC 205, 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 commercial 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 and Lyle Ltd., 1955 AC 21, the assessee company was engaged in sugar refining business and it incurred expenses in a propaganda campaign to oppose the threatened nationalisation 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 deduction being wholly and exclusively laid out for the purpose of the companys trade. Lord Morton of Henryton said:"Looking simply at the words of the rule I would ask: "If money so spent is not spent for the purpose of the companys trade, for what purpose is it spent?" If the assets are seized, the company can no longer carry on the trade which has been carried on by the use of these assets. Thus the money is spent to preserve the very existence of the companys trade".See also Strong and Co. Ltd. v. Woodifield, 1906 AC 448 the observations of Lord Davey; and Smith v. Incorporated Council of Law Reporting, 1914-3 KB 674.9. Counsel for the appellant relied upon the judgment of the Privy Council in Ward and Co. Ltd. v. Commissioner of Taxes 1923 AC 145, but that decision proceeds on a different statute where the words were of a very restrictive character, the words being:".............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 1955 AC 21 on the ground that the language of the New Zealand statute was much narrower than the language of R. 3A in England.10. Reference was also made by the appellant to Boarland v. Kramat Pulai Ltd., 1953-2 All ER 1122. In that case Directors 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 Government and it was held that the question whether the money was wholly and exclusively laid out or expended 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 pamphlet was not wholly and exclusively for the purpose of the companys trade.11. 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 respondents business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible. Thus the money was spent for the preservation of the respondents business.12. As to the third point there is no substance in the submission that the expenditure was in the nature of a capital expense because no asset of enduring nature was being created by this expense.13. 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 respondents business. It was to prevent the threatened extinction of the business of the respondent.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The business of the respondent was to run race meetings on a commercial scale for which it is necessary 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 bot 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 efficient 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 expenditure which was incurred for preventing the extinction of the respondents business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction.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 respondents business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible. Thus the money was spent for the preservation of the respondents business.12. As to the third point there is no substance in the submission that the expenditure was in the nature of a capital expense because no asset of enduring nature was being created by this expense.13. 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 respondents business. It was to prevent the threatened extinction of the business of the respondent.