Desai, J.:— This is a Reference under s. 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee and the question which it raises for our consideration is as follows:

“Whether on the facts and in the circumstances of the case the assessee was entitled to a deduction of a sum of Rs. 8,250/- paid as Income Tax Consultant fees under Section 10(2)(xv) of the Income-tax Act?”

2. The assessee is an individual deriving his income from property, business and dividends on joint stock company shares. In the assessment of his income for the assessment year 1952-1953 the assessee claimed a deduction of an amount of Rs. 8,250 which was paid by him as fees to the income-tax consultant during the relevant year of account as an expenditure allowable under s. 10(2)(xv) of the Act. It appears that the services of the income-tax consultant, to whom the said sum of Rs. 8,250 was paid as fees, were engaged by the assessee in the year 1950 in respect of the assessment years 1944-1945 and 1945-1946 for which the assessments had already been concluded as also in respect of the assessment years 1946-1947, 1947-1948 and 1948-1949, assessment proceedings in respect of which were then pending before the Income-tax Officer for the preparation of accounts and statements in order to settle the tax liability and to straighten out matters in respect of income concealed from the assessments, which had already concluded and which were about to be re-opened as well as from the returns originally submitted in respect of the pending assessments. The deduction claimed was disallowed by the Income-tax authorities on the ground that the services of the consultant were required by the assessee in connection with the offer of settlement made by him to the Department under what was known as the “Voluntary Disclosure Scheme” which was not a general feature in completing income-tax assessments in the normal course, and the fees, therefore, could not be claimed as an allowable expenditure. It was pointed out before the Tribunal by the assessee that the fees were not paid in connection with the offer of settlement under the Voluntary Disclosure Scheme but in connection with the application which the assessee had made to the Department very much before the scheme was announced whereby the assessee had come forward and expressed his willingness to come to a just and fair settlement of his income-tax liability on the income which he was prepared to admit as concealed from the assessments already made as also concealed from the returns submitted in respect of the assessments, which were then pending. It was thus clear that the consultant's services were engaged because in certain years the assessee had concealed the income in his income-tax returns and higher liability than already admitted by him had to be properly settled. The Tribunal was not in agreement with the view taken by the Income-tax authorities that because the services of the consultant were engaged not in the ordinary course of settling income-tax matters but in the extraordinary circumstances of settlement of a higher liability on the admission of the concealed income, the fees that could have been otherwise allowable in the first type of cases could not be allowed in the second type of cases. In its view, therefore, the reason, on which the Income-tax authorities had refused deduction, was not a good and sound reason. It was, however, of the view that the question had to be decided not on the basis of the practice followed by the Department but by considering the legal position whether the income-tax consultant's fees in respect of any assessment proceedings could be allowed under s. 10(2)(xv) of the Act. According to the Tribunal, they could not be claimed as a deduction under the said provision, because since the tax liability arose after the income had been earned, the income-tax consultant's fees in respect of the assessment proceedings could not be treated as an expenditure laid out or expended wholly and exclusively for the purpose of the business. Inasmuch as it took the view that the deduction was not capable of being claimed under s. 10(2)(xv), it held that the circumstance that the Departmental practice was to allow such expenses would not entitle the assessee to claim it as of right. It, therefore, upheld the decision of the Income-tax authorities disallowing the deduction and dismissed the assessee's appeal. On an application made by the assessee under s. 66(1) of the Act it drew up a statement and referred to this Court the question of law, which we have already set out, as arising out of its decision. Any expense, in order to be deductible as an expenditure under s. 10(2)(xv) of the Income-tax Act, must be an expenditure, which is laid out or expended wholly and exclusively for the purposes of the assessee's business, profession or vocation. The question to be considered, therefore, is whether the fees paid by the assessee to the income-tax consultant in the present case can be regarded as expenditure laid out or expended by him wholly and exclusively for the purposes of his business. Now, the expression “for the purpose of business” has been judicially interpreted in a large number of cases and the meaning that has been given to it is that it means for the purpose of carrying on business, that is, to enable a person to earn on and earn profits in that business. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business. They cannot be deducted if they fall on the assessee in some character other than that of a trader. (See Haji Aziz and Abdul Shako or Bros. v. Commr. of Inc.-Tax . 1960 41 I.T.R 350, S.C). Moreover, the item of expenditure must also be such that it is wholly and exclusively laid out for the purpose of the business and not only partially so.

3. Mr. Samarth, learned counsel appearing for the assessee, has argued that the expenditure incurred by the assessee was for the purpose of arriving at the true figure of the profits of his business for assessments and is, therefore, an expenditure incurred for the ascertainment of his profits in the business. He argued that since profits cannot be distributed or applied until ascertained and could not in the proper sense be said to he earned until they are ascertained, the expenditure incurred for the purpose of ascertaining the profits is an expenditure incurred for earning the profits. According to Mr. Samarth, the expenditure incurred is also wholly and exclusively laid out for the purpose of the trade. In support of his submission he has invited our attention fo the observations of Viscount Simon and Lord Oaksey in a decision of the House of Lords in the case of Smith's Potato Estates Ltd. v. Bolland: Smith's Potato Crips (1929) Ltd. v. Inland Revenue Commissioners . 1948 17 I.T.R Supplement 1. and the observations of this Court in Commr. of Inc.-Tax v. Raipur Manufacturing Co. Ltd. . 1946 14 I.T.R 725, S.C 48 Bom. L.R 517. The House of Lords decision, to which our attention has been invited by Mr. Samarth, is actually against him because it has been held in that case that the legal and accountancy expenses of prosecuting an appeal (in that case a successful and profitable appeal) to the Board of Referees against a decision of the Inland Revenue Commissioners under s. 32 of the Finance Act, 1940, incurred by a taxpayer with a view to reducing the assessment made upon him as a trader for excess profits tax, are not admissible deductions either for income-tax or excess profits tax purposes, not being disbursements “wholly and exclusively laid out or expended for the purposes of the trade”. The decision, however, was a majority decision: Lord Oaksey, one of the Law Lords, who heard the appeal dissented and Viscount Simon, though he agreed with the view of the majority that the appeal should be dismissed, expressed that his own view was that the expenses should be permitted as an allowable deduction. Now, the view which Viscount Simon was inclined to take was that it was essential for the proper carrying on of a trade that the trader should know what portion of his profits in a given year was left to him after the Revenue had taken its share by taxation. If, therefore, he considered that the Revenue had sought to take too large a share and to leave him with too little, the expenditure which the trader incurred in endeavouring to correct this mistake was a disbursement laid out for the purposes of his trade. According to him, it was an expenditure incurred for the purpose of carrying on and earning profits in the trade, for a reduction in the amount of tax increased the fund in the trader's hands after tax was paid and so promoted the carrying on of the trade and the earning of trading profits. In the event of the assessee's success before the Revenue Authority, the assessee's tax liability was reduced, but that was only an incidental consequence of the expenses incurred by them. The purpose of the expenditure was only for the purpose of the trade and nothing else.

4. The view of Lord Oaksey was that profits could not be properly applied or divided until they were ascertained, and every expense which was properly incurred for the ascertainment of profits was an expense of earning the profits and not an application of them. According to him, it was the character of the expense which had to be considered, and if the expense was incurred with a view to increase profits and in that sense to earn profits, it was an expense which was laid out for the purposes of the trade. The view of the majority, however, was that the legal expenditure was not wholly and exclusively laid out for the purposes of the trade. In the view of Lord Porter, there was a distinction between the accounts made up on the purely trading basis and those, which were prepared for and accepted by the Inland Revenue. The computation of accounts for tax purposes was not directly associated with the carrying on of the business. It was an obligation imposed upon the assessee for another and extraneous purpose, i.e, for the purpose of ascertaining the tax to be paid out of profits. It was not at any rate directly undertaken for trade purposes but to satisfy the Revenue authorities. According to him such expenditure was incurred directly for tax purposes and for nothing else, though it may indirectly affect, both, the amount available for distribution to the proprietors of the business and that proper to be put to reserve. Hie also pointed out that the ascertainment of the tax liability was not a purpose of trade. The tax paid by the trader assessee was as an individual like any other individual on the sum which he had earned as a trader. Lord Simonds in his speech observed (p. 13):

“…neither the cost of ascertaining taxable profit nor the cost of disputing it with the Revenue authorities is money spent to enable the trader to earn profit in his trade.”

5. The learned Law Lord also observed (p. 13):

“…What profit he has earned, he has earned before ever the voice of the tax gatherer is heard. He would have earned no more and no less if there was no such thing as income-tax. His profit is no more affected by the exigibility of tax than is a man's temperature altered by the purchase of a thermometer, even though he starts by haggling about the price of it.”

6. He agreed with the view of the learned Master of the Rolls that the obligation of a trader or assessee to pay the tax was his obligation as a subject and a taxpayer, and in ascertaining the amount of his liability be was putting himself in a position to discharge his duty to the Crown. As a trader his job was to make profits: as a taxpayer it was his duty like that of any other subject to pay taxes. It was as little a part of his trade to find out how much tax he must pay as it was a part to pay it when he had found out. The view expressed by Lord Normand was on the same lines as Lord Porter and Lord Simonds.

7. Mr. Samarth has pressed upon us that we should take the view, which has been teken by Viscount Simon and Lord Oaksey in the ease, which we have referred to above. In the first place, with very great respect, we find ourselves in agreement with the view taken by the majority in that case. The expenses incurred for the preparation of statements and accounts for tax purposes and the expenses incurred in the engagement of a consultant in satisfying the tax authorities with regard to the said statements and accounts are expenses incurred for the purpose of ascertaining the tax liability and not for the purpose of carrying on the business or for earning profits. The payment, of income-tax is not a purpose of the trade and expenses incurred in connection with the ascertainment of the liability so far as the payment of income-tax is concerned cannot, therefore, be an expenditure laid out for the purpose of the business. We are in agreement with the view taken by the majority in the House of Lords case referred to above that although the tax liability may be reduced as a result of the expenses incurred and the trader may be left with a larger amount of profits, that is only a consequential result of the expenses incurred and the purpose of the expenditure is not to earn profits.

8. As to the observations in Commr. of Inc.-Tax, Commissioner Of Income-Tax, Bombay…Applicant; v. The Raipur Manufacturing Co. Ltd.….*, to which Mr. Samarth has invited our attention, they are as follows (p. 736):

“…The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. That seems to me to be the meaning of the word ‘profits’ in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name ‘profits’ can be properly applied.”

9. We are, with respect, in agreement with what has been expressed in the above observations. The said observations, however, do not help Mr. Samarth in any way. So far as the commercial profits of the business are concerned, the accountancy expenses may be regarded as expenses incurred for the purpose of ascertaining the profits, but the expenses incurred in settling the profits for the purpose of income-tax before the Income-tax authorities could not be said to be expenses incurred for the purpose of ascertaining such profits as are referred to in the above observations. It is undisputed that the expenses incurred in the present case were wholly for the purpose of settling the tax liability. In our opinion, such expenses do not fall under s. 10(2)(xv) as expenditure laid out or expended wholly and exclusively for the purpose of business.

10. Assuming, however, that not only the usual accountancy expenses for ascertaining the commercial profits on a trade basis but also the expenses incurred by the trader in preparing the statements and accounts for income-tax purposes and for the purpose of satisfying the tax authorities with regard to the correctness thereof could be regarded as expenses laid out for the purpose of the trade, even then on the facts and circumstances of the present case, the expenses claimed by the assessee could not be allowed to him. What we have in the present case is that in respect of the assessment of the assessment years 1944-1945 and 1945-1946 for which the assessments had been already concluded and in respect of the assessments for the assessment years 1946-1947, 1947-1948 and 1948-1949, which were then pending before the Income-tax Officer, the assessee had concealed his income. In the year 1950 he applied to the Income-tax authorities and made an offer that he was prepared to have a just and fair settlement of his income tax liability on the income which he was prepared to admit as concealed from the assessments already made and also concealed from the returns submitted in respect of the assessments which were then pending before the Income-tax Officer. It was in connection with the settlement so proposed that the services of the consultant were engaged by him and the expenses incurred. These were, in our opinion, not expenses incurred by any stretch of imagination for the purpose of ascertaining his taxable profits so as to constitute them as expenses incurred for the purpose of earning the profits. They were expenses incurred by him for the purpose of getting out of the difficulty which he had created by the concealment of the income and avoiding the penal consequences of his action. The expenses incurred under these circumstances could not be said to have been incurred for the purpose of trade or business because neither concealment of the income nor an attempt to get out of the penal consequences of the concealment of the income could be said to have any connection with the carrying on of the trade or earning profits of the trade. It will also be seen that the liability, which was likely to fall on the assessee as a result of his having concealed his income, was not the liability, which fell on him as a trader. It was a liability falling on him in the capacity of an individual, who, by committing a fault, had exposed himself to the penal consequences thereof. As observed by the Supreme Court in Haji Aziz and Abdul Shakoor Bros. v. Commr. of Inc.-Tax:

“…If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty for an infraction of the law, it cannot be claimed as a deductible expense, as it cannot be called a commercial loss incurred in carrying on his business.”

11. In the same way, in our opinion, if an expense is incurred by the assessee in trying to avoid or in reducing the penalty to which he would be liable as a result of his having concealed his income or not having submitted properly the returns, which he was in law obliged to do, such an expenditure could not be called a commercial expenditure laid out for the purpose of his trade. Therefore, even if we were inclined to accept the view, which was contended for by Mr. Samarth, that not only the accountancy expenses incurred for making up the accounts on purely trading basis but also the expenses incurred for preparation of statements and accounts for tax purposes and for satisfying the tax authorities as to the correctness thereof, should be regarded as expenses incurred for ascertaining the profits and, therefore, expended for the purposes of the business and hence allowable under s. 10(2)(xv) of the Act, the expenses for which the assessee has claimed deduction in the present case, are clearly not of that nature but of an entirely different nature.

12. Mr. Samarth has then contended that the proceedings contemplated by the application, which the assessee had made in 1950, were not in any way different from the proceedings under s. 34 of the Indian Income-tax Act and the expenses incurred in connection with a reopened assessment under s. 34 of the Indian Income-tax Act would he allowable if such expenses are allowed in respect of the original assessment under s. 23, as expenses incurred for the purposes of ascertaining the true profits and, therefore, for earning the profits of the business.

13. It is not necessary to deal with this submission in any great detail because the present case is not one of reopening the assessment under s. 34 of the Act. It is a case where the assessee, being afraid of his own act of concealment, has gone to the Income-tax authorities, made an admission of concealment of income on his part and offered to arrive at a settlement in respect of his tax liability in the hope that he might get the maximum indulgence from the authorities for the faults committed by him. The present proceedings were started on the admission of concealment of income on the part of the assessee and related to the settlement of a higher tax liability and were not proceedings initiated in the manner and in the circumstances as mentioned in s. 34 of the Act. We do not, therefore, wish to go into the question as to whether if legal expenses upto the assessment stage are allowed in normal assessments under s. 23 of the Act on the ground that they are incurred for the purposes of business, they would also be allowable on the same ground in every reopened assessment under s. 34. It seems to us that what must determine, whether an expenditure is deductible under s. 10(2)(xv), is the nature of the expense and the purpose for which it is expended. In the case before us the experise was incurred by the assessee to straighten out the difficulties into which he had put himself not for the purposes of the trade and not for the carrying on of it but for an entirely different purpose, quite unconnected with his trade. That, the fault, which he has committed, has connection with his trade is not sufficient to make the expenses incurred for getting out of it as expenses incurred for the purpose of his trade.

14. Before the Tribunal, it was also contended that it was the practice of the Income Tax Department to allow income-tax consultant's fees upto the assessment stage and since the fees paid in the present case were also upto the assessment stage, they should have been allowed following the said practice. This contention was not accepted by the Tribunal, and rightly in our opinion, on the ground that the departmental practice cannot be made the foundation of a claim which was not legally admissible as a permissible deduction under s. 10(2)(xv) of the Act. In our opinion, therefore, the question referred to us must be answered in the negative. We answer accordingly. The assessee will pay the costs of the Department.

15. Answer accordingly.