Commissioner Of Income-Tax, Kerala vs Malayalam Plantation Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 384 and 385 of 1963

Decision Date: 10 April, 1964

Coram: K. Subbarao, J.C. Shah, S.M. Sikri

In the matter titled Commissioner Of Income‑Tax, Kerala versus Malayalam Plantation Ltd, the Supreme Court of India delivered its judgment on ten April 1964. The case was heard by a bench consisting of Justice J. C. Shah, Justice S. M. Sikri and Justice K. Subbarao. The petitioner was the Commissioner of Income‑Tax for the State of Kerala and the respondent was Malayalam Plantation Ltd. The judgment was recorded under the citation 1964 AIR 1722 and also reported in 1964 SCR (7) 693, with subsequent references appearing in later law reports. The issues arose under the Indian Income‑Tax Act of 1922, specifically section 10(2)(xv), and the Estate Duty Act of 1953, particularly section 34, concerning whether estate duty paid by a resident company on the death of non‑resident shareholders could be treated as an allowable deduction in computing taxable business income.

The factual background revealed that for the accounting periods 1955‑56 and 1956‑57 the respondent, a resident company incorporated outside India, paid estate duty on the deaths of certain shareholders who were not domiciled in India and recorded those payments as expenses in its revenue accounts when determining profits and gains of its business. The Income‑Tax Officer included the estate duty amounts in the company’s assessable profits and consequently assessed tax for both years. The company appealed the assessment to the Appellate Assistant Commissioner, whose decision was dismissed, but the Appellate Tribunal later set aside the assessments, holding that the estate duty payments were deductible. The Commissioner of Income‑Tax then invoked section 66(1) of the Income‑Tax Act and referred a question of law to the High Court, asking whether the estate duty paid under section 84 of the Estate Duty Act constituted a revenue expenditure deductible under section 10(2)(xv) for the assessment years concerned. The High Court answered affirmatively, agreeing with the Tribunal. Upon special leave, the petitioners argued that the payments made under section 84 were not expenditures of the company and therefore could not be deducted, and that even if they were revenue expenditures, they were not laid out wholly or exclusively for the purpose of the business as required by the statute. The Supreme Court held that the record did not show whether the company could recover the estate duty from the legal representatives of the deceased shareholders in England; consequently, the company, acting as a statutory agent, could not obtain reimbursement and thus bore the expense. The Court concluded that the payments were indeed expenditures incurred by the company and fell within the broader statutory phrase “for the purpose of the business,” which encompasses more than merely earning profits, including administrative rationalisation, modernisation, preservation of the business and protection of its assets.

In this case the Court observed that the assessee, acting as a statutory agent, paid the estate duty to the State on behalf of the deceased non‑resident shareholders. Because the legal representatives of those shareholders could not be compelled to reimburse the company, the payment could not be recovered. Consequently the company bore the expense directly and was effectively out of pocket for the amounts it had paid. The Court therefore held that the sums expended by the assessee in satisfying the estate duty were indeed expenditures incurred by the company. The payment was not merely a conditional outlay made with a right of recovery; rather, it represented a real cost that the assessee had discharged in its own capacity. Accordingly, the amounts could not be characterised as payments made solely on account for a later reimbursement from the persons on whose behalf the duty was paid.

The Court then turned to the meaning of the phrase “for the purpose of the business” in section 10(2)(xv) of the Act. It explained that this expression has a broader reach than the narrower phrase “for the purpose of earning profits.” The scope of “for the purpose of the business” embraces not only the ordinary day‑to‑day operations of a trade but also the rationalisation of administration, the modernisation of machinery, and measures aimed at preserving the enterprise. It also covers actions taken to protect the business’s assets and property from expropriation, coercive processes, or hostile claims, as well as the payment of statutory levies and taxes that are conditions precedent to commencing or continuing a business. Moreover, the expression includes many other acts that are incidental to the conduct of the business. However, the Court noted that the expression is not limitless; its implicit limits require that the expenditure be incurred in the capacity of a person carrying on the business. Expenses incurred as an agent of a third party, whether the agency is voluntary or statutory, do not fall within this ambit because they are paid on behalf of another for a purpose unrelated to the paying party’s own business. Applying this principle to the present facts, the Court found that the estate duty was paid by the assessee purely as a statutory agent to satisfy a statutory obligation that had no connection to its business activities, even though the liability arose because of the company’s operations in India. Accordingly, the Court concluded that the estate duty paid by the respondent could not be allowed as a deduction under section 10(2)(xv) of the Act. The judgment reviewed relevant case law, was delivered by the Court of civil appellate jurisdiction in the appeals numbered 384 and 385 of 1963, and was rendered on 10 April 1964 by Justice Subba Rao, following arguments presented by counsel for both the appellant and the respondents.

In this matter, the Court considered the question of whether estate duty paid by a resident company, which was incorporated outside India and whose shareholders were principally located in the United Kingdom, could be deducted from its profits for the purpose of computing assessable income under section 10(2)(xv) of the Indian Income‑Tax Act, 1922. The material facts were undisputed. The company, referred to as the assessee, made two separate payments of estate duty in respect of the deaths of certain shareholders who were not domiciled in India. During the accounting period that ended on 31 March 1955, the company paid £1,302‑9‑4 and an additional £1,303 as estate duty. It recorded these amounts as revenue expenditures in its accounts when determining the profits and gains of its business for that year. In the subsequent accounting year, ending on 31 March 1956, the company paid a further sum of £3,809‑1‑5 toward estate duty on the death of other shareholders, and again debited the amount to revenue in order to arrive at its profit and gain for that period. The Income‑Tax Officer treated both payments as part of the company’s profits and gains for the two accounting periods and consequently assessed income tax for the assessment years 1955‑56 and 1956‑57 on that basis. The assessee appealed the assessment to the Appellate Assistant Commissioner, but the Commissioner dismissed the appeal. On further appeal, the Appellate Tribunal held that the estate‑duty payments were deductible expenditures in computing the company’s profits and set aside the order of the Appellate Assistant Commissioner. Thereafter, the Commissioner of Income‑Tax applied section 66(1) of the Act, causing the Appellate Tribunal to state a case before the Kerala High Court and to pose the following question of law for the Court’s opinion: “Whether, on the facts and in the circumstances of the case, the estate duty paid by the Company under Section 84 of the Estate Duty Act, 1953, is a revenue expenditure deductible in computing the assessee’s business income for the assessment years in question?” The Kerala High Court agreed with the Tribunal’s view and answered the referred question in the affirmative. The present appeals, granted by special leave, were filed against the High Court’s order. Counsel for the Commissioner of Income‑Tax raised two principal points before the Court. First, he contended that the sums paid by the assessee under section 84 of the Estate Duty Act, 1953, did not constitute expenditure incurred by the assessee company and, therefore, could not be deducted from its profits under section 10(2)(xv) of the Act. Second, even assuming the payments were revenue expenditure, he argued that they were not laid out or expended wholly or exclusively for the purpose of the assessee’s business as required by the statutory sub‑clause. Counsel for the respondent, meanwhile, supported the High Court’s judgment and maintained that the estate duty was indeed revenue expenditure incurred by the assessee.

The Court observed that the assessee claimed the amount paid under the estate duty provision was a loss that it had actually incurred, stating that the sum had been borne out of its own funds and that no evidence had been produced to show that the assessee could legally recover the amount from the legal representatives of the deceased shareholders. The Court noted that the assessee further contended that the payment qualified as expenditure laid out or expended wholly and exclusively for the purpose of its business within the meaning of section ten two fifteen of the Act, because the payment fulfilled a statutory duty that was necessary to preserve the company’s assets. The Court then identified that the dispute turned on the language of section ten two fifteen of the Act, which reads: “Section 10. Business‑The tax shall be payable by an assessee under the head ‘Profits and gains of business, profession or vocation’ in respect of the profits and gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely:‑ (xv) any expenditure (not being an allowance of the nature described in any of the clauses (1) to (xiv) inclusively, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purpose of such business, profession or vocation.” The Court explained that the initial issue was whether the estate duty paid by the assessee could be characterised as expenditure incurred by it within the meaning of that provision. The Court then set out the relevant statutory framework, beginning with section five of the Estate Duty Act which provided that the property of every person who died after the commencement of the Act was liable to a duty called “estate duty” at rates fixed in accordance with section thirty‑five. Section twenty‑one of the same Act excluded from the property passing on death such items as movable property situated outside the territories to which the Act extended at the time of death. Section fifty‑three stipulated that where any property passed on death, every legal representative to whom such property passed for any beneficial interest, or in whom any interest in the property was vested, was accountable for the whole of the estate duty on the property passing. The Court further noted that section eighty‑four, as it stood before amendment, was designed to bring within its reach the property of a member of a company who died outside India. That section required a company incorporated outside India but carrying on business in the territories to which the Act extended, and which had been treated as resident for two out of the three completed assessments immediately preceding, to furnish particulars of the deceased member to the Controller within three months of receiving notice of death, thereby imposing a statutory obligation on the company to pay estate duty on the principal value of the deceased member’s shares.

Section 84 of the Estate Duty Act states that a company may be required to furnish particulars concerning the shares of a deceased member and shall be liable to pay estate duty at the rates specified in Part III of the Second Schedule on the principal value of those shares. This liability does not arise when the deceased member was domiciled in India and the person accountable for the duty has obtained a certificate from the Controller indicating that the estate duty in respect of those shares has either already been paid, will be paid, or is not payable.

Consequently, the statutory scheme imposes on the company an obligation to pay estate duty on the shares of a deceased non‑resident member, based on the principal value of the shares held by the deceased. If the deceased member died while residing in India, and the conditions mentioned in the provision are satisfied, the company would be exempt from paying the estate duty on those shares. In effect, the legislation renders the company a statutory agent responsible for settling the duty that is due on property belonging to another person.

Section 77 of the Estate Duty Act permits a person who is authorised or required to pay estate duty on any property to transfer that property for the purpose of satisfying the duty. However, this provision does not operate beyond the territorial limits of India. On its face, the company cannot transfer the shares or any other property of a person who is domiciled outside India. Sub‑section (2) of Section 77 further provides that a person who has an interest in a property and who pays the estate duty on that property shall be entitled to a corresponding charge, on the ground that the estate duty was raised against him by way of a mortgage. This sub‑section is inapplicable because the company does not possess any legal interest in the shares owned by a third‑party shareholder, and it likewise lacks extraterritorial effect.

No material was placed before the Court that would enable it to determine whether, in England where the shareholders died, the resident Indian company could recover from the legal representatives of the deceased the amount it had paid as estate duty in India. Accordingly, the Court assumed that the assessee, acting as a statutory agent, pays the duty to the State but cannot recover that amount from the legal representatives of the deceased non‑resident shareholders. In such a circumstance, the company would bear the expense of the estate duty it has paid on behalf of those persons. Therefore, the Court could not accept the argument advanced by counsel for the appellant that the sums paid by the assessee toward estate duty did not constitute expenditure incurred by the assessee, but were merely payments made with a right of recovery from the persons on whose behalf the duty was settled.

The Court observed that the expense could be allowed only when it represented an amount actually paid by the assessee and when the assessee possessed a legal right to recover that amount from the persons on whose behalf the payment was made. The next issue before the Court was whether such an expense was incurred wholly and exclusively for the purpose of the assessee’s business as required by section 10(2)(xv) of the Income‑Tax Act. The pivotal expression in that provision is “for the purpose of such business.” Section 10(2)(xv) functions as a residuary clause, meaning that it permits a deduction for any business expenditure that does not fall within the specific categories listed in the other sub‑clauses of section 10(2). Prior to the Amending Act of 1939, the corresponding clause in the earlier version of the statute read: “not being in the nature of capital gains incurred solely, for the purpose of earning such profits or gains.” The 1939 amendment replaced that wording with the broader phrase “for the purpose of such business,” thereby expanding the scope of the provision. The Court noted that several earlier decisions, both from England and India, provide guidance on how to interpret the expression “for the purpose of such business,” and it therefore proceeded to examine those authorities.

In the House of Lords decision of Strong and Company of Romsey Limited v. Woodifield, the Lords interpreted a similar provision in the United Kingdom Income‑Tax Act that required money to be “wholly and exclusively laid out or expended for the purposes of such concern.” In that case, a brewing company that also owned licensed inns incurred damages and costs of £1,490 because a visitor was injured by a falling chimney in one of its inns. The Lords held that those damages and costs could not be deducted when computing the company’s taxable profits. The Lord Chancellor explained that such expenses were not deductible because they were “mainly incidental to some other vocation, or fall on the trader in some character other than that of a trader.” Lord Davey, whose earlier judgment formed the basis of many later rulings, gave a narrower definition of the phrase “for the purpose of trade.” He stated that it is insufficient for the expenditure merely to arise in the course of trade, to be connected with trade, or to be paid from trade profits; the expense must be made for the purpose of earning profits. Finlay, J., in Allen v. Farquharson Brothers Limited, observed that the qualification “for the purpose of earning profits” represented a slight expansion of the statutory language, yet he felt that it accurately captured the true meaning intended by the legislature.

In the case of Rowntree and Company, Ltd. v. Curtis (H.M. Inspector of Taxes) the Court denied a deduction that the company sought for an amount it had set aside for the relief of its disabled employees. The judge, Rowlatt, applied the test of whether the expenditure was incurred for the purpose of earning profits. In a later decision, Cooke v. Quick Shoe Repair Service, the Court allowed a deduction for sums that the respondent firm paid in settling the business liabilities that existed at the date the respondent acquired the business from a third party. The Court held that the expenditure was incurred for preserving goodwill and for ensuring a continuous supply of raw material and labour, and therefore was wholly and exclusively laid out for the purpose of the business. After referring to earlier authorities, Justice Croom‑Johnson observed that the payments made in the present case were intended to secure a supply of leather for the business, to ensure the continued availability of workers willing to be employed, and to pay rent so that the landlord would not refuse consent to the assignment of the premises in which the business operated. He expressed the view that it was impossible to say that there was no evidence to justify those findings. The judgment noted that the learned judge had gone beyond the narrow scope given by Lord Davey to the statutory expression, not limiting the analysis to amounts spent solely for earning profits but extending it to expenditures incurred in connection with the business.

The judgment further referred to the case Southern (H.M. Inspector of Taxes) v. Borax Consolidated, Ltd., where the Court held that an amount spent by a company in defending its title to property was wholly and exclusively for the purpose of the company’s trade and thus allowable as a deduction when computing taxable profits. That decision was said to give a broader meaning to the phrase “for the purpose of the trade” than that articulated by Lord Davey, indicating that the purpose of the trade also includes protecting the assets of a trading company. The House of Lords later reconsidered the position in Morgan (Inspector of Taxes) v. Tate and Lyle Ltd., examining whether expenditure incurred by a sugar‑refining company in a propaganda campaign against a proposed nationalisation was an admissible deduction. Lord Morton, after reviewing the relevant case law and Lord Davey’s formula, observed that the assumption that the campaign was justified was wholly unwarranted by the evidence, emphasizing that there was no proof that a transfer of assets to a national body would not destroy or adversely affect the company’s business.

The Court observed that the authorities demonstrated that Lord Davey’s formula encompassed expenditure made to prevent a person from being incapacitated to continue carrying on and earning profits in a trade. Lord Reid then articulated the applicable test, stating that the general enquiry was whether the money was spent by the assessed person in the capacity of a trader or in some other capacity; that is, whether the expenditure was truly incidental to the trade itself or whether it was mainly incidental to another vocation or was incurred by the trader in a capacity other than that of a trader. The decision also restated the two established criteria: first, that the expenditure must be incurred for the purpose of carrying on the business to earn profits in the trade; and second, that the expenditure must be incurred by the assessee in his capacity as a person carrying on the business. The Court cited the authorities (1) (1942) 10 T.T.R. (Suppl.) 1, S. and (2) (1954) 26 I.T.R. 195, 205, 206, 219 to support these propositions. Lord Greene, M.R., in Rushden Heel Co., Ltd. v. Keene (1) reaffirmed the second criterion, explaining that an expense is not deductible when it falls upon a trader in a character other than that of a trader. He referred to the earlier decision in Strong and Company’s case (2) as providing a clear answer to the present appeal, noting that the matter was a decision, not a dictum, and that the expense in question was incurred by the appellants not as traders but as householders. Lord Greene further cited the opinion of Lord Loreburn, L.C., which was concurred by Lords Macnaghten and Atkinson, emphasizing that the expense fell upon the appellants in their non‑trader character.

In Smith v. Lion Brewery Co., Ltd. (3), the issue was whether a brewery company that owned and leased several licensed premises, where business was conducted on a tide‑house basis, could deduct for income‑tax purposes the liability it incurred under the Compensation Fund provisions of the Licensing Act, 1904. The Crown argued that the liability arose in the company’s capacity as a landlord rather than as a brewer‑trader. When the matter reached the House of Lords, the Lords were evenly split, but the view of two members who aligned with the Court of Appeal ultimately prevailed. The majority held that the liability was wholly and exclusively related to the carrying on of the company’s business because, on the facts, the company had assumed the role of landlord for the purpose of its trade. The Court noted that had it accepted the dissenting Lords’ view that the company paid the tax merely as a landlord, the result would have been the opposite. The discussion then turned to Harrods (Buenos Aires) Ltd. v. Taylor‑Gooby (H.M. Inspector of Taxes) (4), which was cited for further illustration of the principles.

Buckley, J., examined the issue anew, focusing on whether the appellant‑company—incorporated and resident in the United Kingdom and engaged in the business of a large general store in Buenos Aires—could claim a deduction under the Income‑tax Act, 1952 (15 and 16 Geo. VI and 1 Eliz. I, c. 10, s. 137 (a)) for a tax it had paid in Argentina known as the “substitute tax.” The learned judge observed that, according to the facts of the case, the relevant authorities were (1) (1947) 30 T.C. 298, 316; (2) (1905) 5 T.C. 215; (3) (1910) 5 T.C. 568; and (4) Appeal No. 2048 (Ch. D.) decided on 25 March 1963 (unreported). He held that incurring liability for the substitute tax was a pre‑condition to the company’s earning profits in Argentina, because without such liability the company could not conduct its business in that country at all. On that basis, the judge concluded that the tax liability was incurred by the company expressly for the purpose of its trade and therefore constituted a payment made wholly and exclusively for the trade of the company. The judgment further emphasized that in the present case the tax was paid by the company in its capacity as a trading entity, and that the inability to pay the tax would have prevented the company from carrying on its business. Consequently, the two tests that had been articulated earlier were satisfied.

At this point, the judgment briefly recapitulated the English legal position. The relevant wording of the provisions considered by English judges was essentially analogous to the language of s. 10(2)(xv) of the Indian Income‑tax Act, 1922. The test articulated by Lord Davey in Strong and Company of Ramsey, Ltd. v. Woodifield (1) required that a disbursement be made for the purpose of earning profits; this test has been consistently accepted and applied, although its scope has been broadened to accommodate varying circumstances. English courts have generally applied two criteria to determine whether a deduction is allowable: (i) whether the expenditure was incurred for the purpose of carrying on the business and for removing obstacles or impediments to the conduct of the business; and (ii) whether the assessee incurred the expenditure in the capacity of a businessman rather than in a personal capacity.

The judgment then turned to Indian authorities. A Division Bench of the Bombay High Court in Tata Sons Ltd. v. Commissioner of Income‑tax, Bombay (2) held that a bonus voluntarily paid by a company, which acted as the managing agent of another company, to certain officers of the managed company was deductible under s. 10(2)(xv) of the Act. The court explained its reasoning, stating: “But having considered the whole case and the question submitted to us I am satisfied that looking purely at it from the point of view of commercial principles what the assessee company has done is something which had as its object increasing the profits of …”

In this passage the Court referred to the observation that the conduct of the Tata Iron and Steel Company served to increase that company’s own share of the commission, citing a report from 1906 and a tax case reported in 1950. The Court then turned to the decision in Badridas Daga v. Commissioner of Income‑tax, where the agent of the assessee had misappropriated money and the assessee sought to treat the unrecovered portion of that misappropriated sum as a deduction under section 10(2)(xv) of the Act. The Court held that such a deduction could not be allowed either under section 10(2)(xi) or under section 10(2)(xv). Justice Venkatarama Ayyar noted that when a claim for deduction is made for an item that does not fall within a specific provision of section 10(2), the admissibility of the claim depends on whether, having regard to accepted commercial practice and trading principles, the expense can be said to arise out of the carrying on of the business and to be incidental to it. This pronouncement, although not directly on point, laid down the principle that an expenditure is deductible only when it originates from the business’s operations and is incidental to those operations.

The Court further examined the decision in Indian Molasses Co. (Pvt.) Ltd. v. Commissioner of Income‑tax, West Bengal, where it was held that section 10(2)(xv) of the Act expressly enacts what the English statute had expressed in negative terms, that the provision is substantially on the same footing as the English enactment, and that English authorities may be consulted as aids in interpreting the provision. The Court also referred to the earlier judgment of Commissioner of Income‑tax, Bombay v. Abdullabhai Abdulkadar, which primarily concerned section 10(1) of the Act but offered assistance for the issue presently before it. One of the questions raised in that case was whether tax paid by the assessee‑firm in its capacity as an agent of a non‑resident principal could be claimed either as a bad debt or as a trading loss. Justice Kapur, speaking for the Court, observed that the loss incurred by the appellant did not arise in its own business but resulted from the business of another person, and therefore such a loss could not be permitted as a deduction under section 10(1). Although that decision did not arise under section 10(2)(xv), the principle that an expense incurred by the assessee in the capacity of an agent of another is not a deductible item was deemed equally applicable to the present matter. The Court then considered the case of The Commissioner of Income‑tax, West Bengal v. Royal Calcutta Turf Club, which required determination of whether an expense incurred by a race club for training its jockeys could be allowed as a deduction under section 10(2)(xv). After reviewing the relevant authorities, Justice Kapur, speaking for the Court, concluded that applying the law as laid down in those cases to the present facts leads to the conclusion that the amount

In the earlier case, the Court observed that the expenditure was incurred wholly and exclusively for the purpose of the respondent’s business because the supply of efficient and skilled jockeys was essential to the continuation of that business. The Court therefore concluded that the money spent was aimed at preserving the respondent’s business. This observation was described as giving a liberal construction to the relevant expression.

The Court also referred to the decision in M/s. Haji Aziz and Abdul Shakoor Bros. v. The Commissioner of Income‑tax, Bombay City II, where it disallowed the deduction of a penalty paid by a firm to secure the release of a consignment that had been confiscated by customs authorities. Justice Kapur, speaking for the Court, quoted an earlier interpretation of the words “for the purpose of such business” in Inland Revenue v. Anglo Brewing Co., Ltd., stating that those words meant “for the purpose of keeping the trade going and of making it pay.” After reviewing the applicable authorities, Justice Kapur further explained that such expenses could not be deducted because they fell on the assessee in a character other than that of a trader. He said that when a penalty is incurred for violating a specific statutory provision, it cannot be characterised as a commercial loss of the trader, because the test is that expenses must be incurred for the purpose of enabling a person to carry on trade and earn profit. Expenses that are merely connected with the business, but do not meet that purpose, are not allowable.

The Court stressed that the judgment was based on the principle that a penalty paid for a breach of law cannot be described as an amount wholly and exclusively laid out for the purpose of the business. Moreover, the Court indicated that any expenditure incurred by a trader in a capacity other than that of a trader is not an allowable deduction.

Further, the Court clarified that the expression “for the purpose of the business” has a broader scope than the expression “for the purpose of earning profits.” Its reach may include not only the day‑to‑day operations of a business but also the rationalisation of its administration, the modernisation of its machinery, measures for preserving the business, and protecting its assets and property from expropriation, coercive processes, or hostile claims. The expression may also cover the payment of statutory dues and taxes that are conditions precedent to commencing or continuing a business, as well as many other acts incidental to the conduct of a business. However, the Court noted that the expression’s limits are implicit: the expense must be incurred for carrying on the business, and the assessee must incur it in his capacity as a person engaged in that business. Expenditures that do not meet this condition cannot be treated as deductions.

The Court explained that the provision did not cover sums expended by the assessee when acting as an agent of a third party, whether the agency arose voluntarily or by operation of law; in such circumstances the assessee pays the amount on behalf of another and for a purpose that is unrelated to the business. In the case before it, the company acted as a statutory agent of the deceased owners of the shares and consequently paid the amounts that were due from the legal representatives of those deceased shareholders. The Court observed that these payments had no connection with the conduct of the company’s business. It further noted that if, by default, the Revenue were to recover the unpaid dues from the business assets, such recovery would be a consequence of the assessee’s failure to discharge a statutory obligation, but that consequence did not transform the payment into an expenditure incurred in the ordinary conduct of business. The Court found it clear that the amounts in question were disbursed by the assessee in its capacity as a statutory agent to satisfy a statutory duty that was unrelated to the business, even though the occasion for the duty arose because of the territorial nexus created by the company’s operations in India. Accordingly, the Court held that the estate duty paid by the respondent could not be allowed as a deduction under section 10(2)(xv) of the Act. The Court answered the issue in the negative, set aside the order of the High Court as erroneous, and allowed the appeals with costs, directing that one set of hearing fees be awarded and that the appeal be allowed.