K.K. Dubey, J.
1. This is a reference made by the Income-tax Appellate Tribunal referring for our answer, the following question of law :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the payment of Rs. 9,328 in assessment year 1965-66 and Rs. 20,053 in assessment year 1966-67, towards income-tax arrears of M/s. United Transport Company is an allowable deduction in determining the business income of the assessee ?'
2. The reference relates to the assessment years 1965-66 and 1966-67. The assessee purchased a running transport business of United Transport Company, Damoh. There were arrears of income-tax due from the United Transport Company. In the previous years relevant to the assessment year 1965-66, the buses in the possession of the assessee were attached for payment of income-tax dues of United Transport Company. The assessee paid Rs. 9,328 for the release of the buses. Similarly, in the previous year relevant to the assessment year 1966-67, the buses were again attached for income-tax dues of the United Transport Company. The assessee paid Rs. 20,053 and got the buses released forcarrying on the business. The Tribunal allowed these payments as deductions under Section 37(1) of the I.T. Act, 1961.
3. The learned standing counsel for the Department submitted before us that the assessee was not liable to pay the income-tax dues of the United Transport Company and the said dues cannot be allowed as business expenditure under Section 37. The learned counsel had also submitted that in case the assessee was liable to pay the income-tax dues of the United Transport Company, the payments made would amount to a capital expenditure. The learned counsel had relied upon the case of Dashmesh Transport Co. (P.) Ltd. v. CIT .
4. The assessee was not liable to pay the income-tax dues of the United Transport Company. The payment made forgetting the buses released cannot, therefore, amount to capital expenditure and the Punjab & Haryana case of Dashmesh Transport Co. (P.) Ltd. , is distinguishable on facts. The principles for the application of Section 37(1) were considered by a Full Bench of this court in Addl. CIT v. Kuber Singh Bhagwandas : 118ITR379(MP) . It was held in that case that the test for determining whether an expenditure falls under Section 37(1) and can be allowed is of commercial expediency. It was also laid down that a payment voluntarily made in order to facilitate the carrying on of the business on the ground of commercial expediency may amount to expenditure wholly and exclusively for the purpose of the business. Tested in the light of these principles, in our opinion, the Tribunal was right in holding that the expenditure incurred in the instant case was wholly and exclusively incurred for the purpose of business. We have already stated that the buses were attached by the I.T. Dept for realising the dues of the United Transport Company. The possession of buses by the assessee was absolutely necessary for carrying on its business. The commercial expediency required payment of the dues for the release of the buses so that the assessee may carry on its business. It is immaterial here that the assessee was not bound to pay the income-tax dues of the United Transport Company.
5. For the reasons given above, we answer the question in the affirmative, in favour of the assessee and against the Department. There will be no order as to costs of this reference.