J.K. COTTON MANUFACTURES LTD. vs THE COMMISSIONER OF INCOME TAX, LUCKNOW

The Supreme Court analyzed Section 10(2)(xv) of the Income-tax Act, 1922, establishing that for an expenditure to be deductible, it must be incurred wholly and exclusively for business purposes and not of a capital nature. The Court held that the compensation paid to the outgoing managing agents was capital expenditure, as it was not justified by any negligence or disadvantage caused by them, and thus not deductible under the section. The High Court's ruling that the expenditure was capital in nature was upheld.