Landmark Cases on Business Income and Deductions

Expenditure is not allowable if the assessee fails to discharge the onus of proving that it was incurred out of business expediency.

Expenditure incurred by pharmaceutical companies providing gifts or freebies to doctors is not deductible if it violates MCI Regulations.

Losses arising from forfeiture of security deposits due to non-performance of a trading contract are allowable as a deduction. Similarly, liquidated damages deducted from consideration for late delivery of goods as per contractual terms are also deductible as business expenses.

Commercial manufacture, not experimental production, determines the commencement date for deductions under provisions like Section 84 of the 1961 Act (and its predecessors).

Interest paid on money borrowed by an assessee, even when advanced to a subsidiary for a business purpose, is allowable as a deduction. The business or commercial expediency of the advance is the primary consideration.

Expenditure incurred for the purchase of catalogues and brochures, if wholly and exclusively for the purpose of business, is an allowable deduction. This principle is supported by the Bombay High Court decision in F.E. Dinshaw Ltd. (36 ITR 114).

Profits from the sale of land are taxable as business income when the assessee takes steps to exploit the land, such as converting its land-use, regardless of the time lag between purchase and sale.

Interest income earned by an assessee on margin money deposits with a bank constitutes profits and gains of business, making it eligible for deduction under Section 80-IA.

Expenditure relating to earlier years is allowable in the year the liability has crystallized. The burden is on the assessee to show that the liability crystallized in the relevant year.

Disallowance of interest expenses claimed as a deduction is not warranted when the assessee has sufficient own funds to cover the advances made to sister concerns, even if the advances are interest-free.

Disallowance of interest on borrowed funds advanced to a sister concern is confirmed where the funds were not utilized for business expediency and constituted a loan transaction, particularly when the advance was not utilized for the project within a reasonable time.

Consideration received for the sale of time-share for 99 years is taxable over the years in which the assessee is to provide services and facilities.

A capital receipt that is not chargeable to tax and does not fall within any charging section or head of income cannot be treated as part of net profit for tax purposes. Only receipts in the nature of income, falling within a charging section, are subject to tax.

Expenditure incurred on the production of TV serials and programmes can be treated as revenue expenditure. The distinction between 'news content' with no repeat telecast value and TV serials/programmes with repeat telecast value is relevant in determining the nature of expenditure.

For expenses to be deductible as business expenditure, their reasonableness must be judged from the businessman's perspective, not the revenue's. The expenditure must also be incurred wholly and exclusively for the purpose of the business.

Prior period expenses are allowable as a deduction in the year in which the liability crystallizes, even if they pertain to a previous period, provided the assessee followed the mercantile system of accounting and can substantiate the crystallization of the liability.

After April 1, 1989, it is sufficient to write off a debt as irrecoverable in the books to claim a bad debt deduction; it is not necessary to establish that the debt has become irrecoverable.

There is no conflict between the Supreme Court's decisions in Pingle Industries and Gotan Lime Syndicate, as there are material differences in the facts of those cases.

Expenditure incurred for acquiring premises on lease is allowable as a business deduction. The period of the lease is not decisive of whether the asset is of an enduring nature.

Expenditure on computer software is revenue in nature if it does not have a long-term enduring benefit due to rapid technological changes and obsolescence.

Commission payments to agents are allowable as business expenditure if the agents are not bogus, the payments are evidenced, and the commission is paid by crossed cheque, especially when it helps achieve higher turnovers.

Expenditure incurred voluntarily towards charity, without business expediency, is an application of income and not allowable as a deduction under section 37(1).

Where an Assessing Officer makes additions on account of bogus purchases and the Commissioner (Appeals) and Tribunal find that the assessee yielded huge profits from sales, the Tribunal is justified in restricting additions on account of bogus purchases to a specified percentage (e.g., 25%).

Buyback of its own shares by a company is neither capital expenditure nor does it result in enduring benefits to the company. The consideration of non-deduction of TDS, which was evident from Form 3CD and not considered in the original assessment order, is not a change of opinion for reopening.

Expenditure incurred by a holding company on investments in its subsidiary can be considered a business expenditure and cannot be disallowed.

Deduction allowed in the initial year under Section 80-IA cannot be denied in subsequent years due to alleged breach of conditions, if no distinguishing facts are brought on record.