Section 37(1)

Section 37(1) — the law in short

What the courts have decided on section 37(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Bharti Hexacom Ltd Supreme CourtHelps departmentJudgment not reachable
  I run a telecom company and I have been claiming the annual revenue-share licence fee paid to the Department of Telecommunications as a business expense. The assessing officer says the Supreme Court has held it is capital and must go through section 35ABB. What did the Court actually decide?
  It decided that the licence fee has one character throughout, and that the character is capital. The licensees had migrated from the telecom policy of 1994, under which the fee was fixed, to the policy of 1999, under which a one-time entry fee was payable, calculated as the licence fee dues up to 31 July 1999, and the fee thereafter was a share of gross revenue. The Delhi High Court had split the payment on that date, treating the fee up to 31 July 1999 as capital, qualifying for deduction under section 35ABB, and the revenue-share fee after 1 August 1999 as revenue. The Supreme Court framed the question as whether the variable annual licence fee paid to the Department of Telecommunications under the policy of 1999 is revenue in nature and deductible under section 37, or capital and accordingly required to be amortised under section 35ABB. It answered that the later payment is a continuation of the earlier one in an altered format, that the change of format does not take away the essence of the payment, that it is a mandatory payment traceable to the licence agreement and non-payment would put the licensee out of the trade, and that such a payment has to be treated or characterised as capital only. The date of 31 July 1999 therefore marks a change in how the fee is measured, not a change in what it is.
• Apex Laboratories P Ltd v DCIT Supreme CourtHelps departmentNo later treatment found
  Can a pharmaceutical company deduct the cost of gifts given to doctors?
  No. Acceptance of such gifts is prohibited for the doctor, and a prohibition on the recipient is equally a prohibition on the giver. The expenditure falls within Explanation 1 to s.37(1) as being for a purpose prohibited by law.
• CIT v Odeon Builders Pvt Ltd Supreme CourtHelps taxpayer
  The whole disallowance rests on an Investigation Wing report. Is that enough?
  No. A disallowance cannot rest on third-party information alone that has not been independently verified, especially where cross-examination was denied and the assessee had already produced bills, transport records, bank payments and the sellers' registrations and returns.
• CIT v Tasgaon Taluka S.S.K. Ltd Supreme CourtCuts both ways
  The Assessing Officer has disallowed the whole difference between the statutory minimum cane price and the State advised price my sugar co-operative paid its members. Can he?
  No — not the whole difference. The Supreme Court held that only that component of the final or additional cane price fixed under Clause 5A of the Sugarcane (Control) Order 1966 which represents profit is an appropriation of profit; the rest is deductible expenditure. The Assessing Officer must actually do the exercise of identifying the profit component from the accounts and the material supplied to the State Government, and all the orders below were set aside and the matters remitted for that purpose.
• Southern Technologies Ltd v Joint CIT Supreme CourtHelps department
  My NBFC has to debit a provision for non-performing assets to the profit and loss account under the RBI norms. Can the officer add it back when computing my taxable income?
  Yes. The Supreme Court held that a provision for non-performing assets made by a non-banking financial company under the RBI's Prudential Norms Directions 1998 must be added back in computing total income. The Directions are prudential and disclosure norms; they govern income recognition and how the provision is presented in the balance sheet, and have nothing to do with computation of taxable income. The provision is not a write-off, so section 36(1)(vii) is not satisfied, and because the Explanation to section 36(1)(vii) expressly puts a provision for doubtful debt outside that clause, section 37(1) cannot be used instead. The constitutional challenge to sections 36(1)(viia) and 43D also failed.
• CIT v Sri Mangayarkarasi Mills (P) Ltd Supreme CourtHelps department
  I replaced worn out machines in my spinning mill. Is that current repairs or at least revenue expenditure, since the mill is one integrated plant?
  Neither. The Supreme Court held that each machine in a textile mill is an independent and separate asset with its own function, notwithstanding that all of them form part of one integrated manufacturing process. Replacing an old machine with a new one therefore brings a new asset into existence rather than preserving or maintaining an existing one, so it is not current repairs under section 31. It also gives the assessee an enduring benefit of better and more efficient production, so it is capital and not deductible under section 37. The claim of Rs 61,28,150 for assessment year 1995-96 was disallowed and the Assessing Officer's order restored.
• Rotork Controls India P Ltd v CIT Supreme CourtHelps taxpayer
  We give a warranty on every unit we sell and provide a percentage of turnover for it each year — can the Assessing Officer disallow that as a contingent liability?
  Not where the provision is properly built. The Supreme Court held on 12 May 2009 that a warranty provision is deductible under section 37 where three conditions are met: a present obligation arising from a past event, the probability of an outflow of resources to settle it, and a reliable estimate of the amount. Where an enterprise sells large numbers of sophisticated goods, past experience of defects in some of them creates a present obligation on the sales already made, and the warranty is part of the sale price. The estimate must rest on a historical trend captured by a proper accounting system, reassessed each year, with unused provisions reversed.
• CIT v McDowell & Co Ltd Supreme CourtCuts both ways
  I have given the excise authorities a bank guarantee for unpaid bottling fee. Does that count as actual payment under section 43B - and is bottling fee even covered by section 43B?
  A bank guarantee is not payment, but bottling fee is outside section 43B altogether, so the deduction stood. The Supreme Court held that section 43B requires actual payment, meaning money must flow from the assessee to the public exchequer, and a guarantee of payment on a future event is not that. But it also held that tax, duty, cess or fee, by whatever name called, must be read ejusdem generis: the sum must belong to the genus of taxation, a compulsory exaction under the State's taxing power. Bottling fee under the Rajasthan Excise Act is the consideration for parting with an exclusive privilege - contractual, not an impost - so section 43B did not apply. The Revenue's appeal was dismissed.
• CIT v Woodward Governor India P Ltd Supreme CourtHelps taxpayerNo later treatment found
  I restated my foreign currency creditors at the closing rate and debited an unrealised loss. Can the AO throw it out as a contingent liability?
  No. Under the mercantile system, the loss on restating foreign currency monetary items at the balance sheet date is an item of expenditure under s.37(1), and the word 'expenditure' is wide enough to cover a loss that has not gone out of the assessee's pocket. Section 43A is a separate regime that applies only to an asset acquired from a country outside India, and after its substitution by the Finance Act 2002 it operates only at the time of actual payment.
• CIT v Saravana Spinning Mills Pvt Ltd Supreme CourtHelps department
  I replaced worn-out ring frames in my spinning mill as part of modernisation. Can I write the cost off as current repairs because the whole mill is one plant?
  No. The Supreme Court held that a ring frame is an independent machine with its own function, and replacing it substitutes a new asset for an old one rather than preserving an existing one. The test under section 31(i) is not whether the spending is revenue or capital but whether it is current repairs, and current repairs means expenditure to preserve and maintain an asset already in existence, not to bring a new asset into being or obtain a new advantage. The Court rejected the argument that a textile mill is one continuous integrated process and therefore a single plant.
• S.A. Builders Ltd v CIT (Appeals) Supreme CourtCuts both ways
  I passed borrowed money to my sister concern interest-free. Can the AO disallow the interest I paid?
  Only if the advance fails the commercial expediency test. Interest on borrowed funds advanced interest-free to a sister concern is deductible under s.36(1)(iii) where the advance was made on grounds of commercial expediency, an expression of wide import covering what a prudent businessman spends for the purposes of business, with no need for a legal obligation.
• Dr T.A. Quereshi v CIT Supreme CourtHelps taxpayer
  My stock in trade was seized and confiscated. The officer says the Explanation to section 37(1) blocks the deduction because the activity was an offence. Is he right?
  No. The Supreme Court set aside the Madhya Pradesh High Court's judgment and restored the Tribunal's order allowing a deduction of Rs 2 lakh. The Explanation to section 37 speaks only of expenditure incurred for a purpose which is an offence or prohibited by law. This was not expenditure but a business loss, and the Explanation has nothing to do with it. Once it was found as a fact that the seized heroin formed part of the assessee's stock in trade, the seizure and confiscation had to be allowed as a business loss on ordinary commercial principles. The Court held that the High Court had taken an emotional and moral approach rather than a legal one.
• Bharat Earth Movers v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  My liability is certain but I cannot put a final figure on it yet and I will not pay it for years. Can I still deduct the provision?
  Yes, so long as the liability has actually arisen in the year. A liability that has definitely arisen is deductible even though it still has to be quantified and will be discharged later; what is not deductible is a liability that is merely contingent. On the facts, the provision for leave encashment was held to be an accrued liability, not a contingent one — but for years governed by s.43B(f) that particular result no longer holds.
• CIT v Madras Auto Service (P) Ltd Supreme CourtHelps taxpayer
  I demolished my landlord's building and put up a new one at my own cost, and the new building belongs to him. I got a 39-year lease at a fraction of the market rent for it. Is what I spent capital or revenue?
  Revenue, on these facts. The Supreme Court held that the expenditure has to be looked at from a commercial point of view and asked what advantage the assessee actually got. It got no capital asset, because the building belonged to the lessor from the moment the first brick was laid, and it could therefore claim no depreciation. What it got was a long lease of suitable premises at a rent far below the market, which is a saving of future rent - a saving in the revenue field. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure.
• Maddi Venkataraman & Co (P) Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  I broke the foreign exchange law to move stock I could not otherwise sell. Can I still deduct what that cost me as a business expense?
  No. The Supreme Court held that expenditure incurred in evading the provisions of another statute, and any penalty levied for that evasion, cannot be deducted. It is not enough that a payment was made in the course of trade; it must be for the purpose of the trade, and the purpose must be lawful. A business can be carried on without breaking the law, and section 37 assumes it will be. Allowing the deduction would make the penal provisions of the Foreign Exchange Regulation Act meaningless. Facing a loss is no justification for contravening the law. The appeal was dismissed.
• Madras Industrial Investment Corpn v CIT Supreme CourtCuts both ways
  My company issued debentures at a discount and my accountant has written the whole discount off in the year of issue as a cost of raising the money. The assessing officer says it has to be spread over the life of the debentures. Which of us is right?
  The officer is right, and the authority for it is a judgment the assessee itself asked for. The company issued debentures of Rs 1.5 crore at Rs 98 for every Rs 100, redeemable over twelve years, and claimed the whole discount of Rs 3,00,000 in the year of issue. The Supreme Court held that the discount is expenditure: in return for Rs 98 the company has undertaken to repay Rs 100, and the difference is part of what the borrowing costs. It then refused to allow all of it in one year. The benefit of the money borrowed runs over the twelve years the debentures are outstanding, so the liability is spread over that period and only the proportionate part belongs to the year of issue. The company was allowed Rs 12,500, the six months' share falling in the accounting year, and the balance of Rs 2,87,500 was held not deductible in that year. The High Court's judgment was set aside and the appeal disposed of with no order as to costs. The Court was careful about how far it was going: ordinarily revenue expenditure is allowed in full in the year it is incurred and cannot be spread merely because the books spread it, and this was an exception the facts justified.
• Brooke Bond India Ltd v CIT Supreme CourtHelps department
  I spent money issuing fresh shares to raise my capital, and I used the money as working funds. Can I write that expenditure off as revenue?
  No. The Supreme Court held that expenditure incurred in issuing shares to increase capital is capital expenditure, because it is directly related to the expansion of the capital base of the company. That the expansion incidentally helps the business and may help in making profits does not change its character. The Court applied its own decision in Punjab State Industrial Development Corporation, on the filing fee paid to the Registrar of Companies for enhancement of capital, and preferred the view of the High Courts that had gone in favour of the Revenue over the Madras decision in Kisenchand Chellaram.
• Jonas Woodhead and Sons (India) Ltd v CIT Supreme CourtHelps department
  My collaboration agreement pays the foreign company a running royalty on turnover. The Department wants to treat a quarter of it as capital. Can a single royalty be split at all?
  It can. The Supreme Court upheld a finding that a quarter of the royalty was capital, on facts where the foreign firm had not merely supplied technical know-how but had furnished plans and designs and rendered valuable services in setting up the factory itself, the business was new, and after the agreement expired there was no bar on the assessee continuing to make the product. The Court held it difficult to treat the whole payment as revenue merely because it was calculated as a percentage of gross turnover. How the money is paid does not settle what it was paid for.
• Punjab State Industrial Development Corporation Ltd v CIT Supreme CourtHelps department
  I paid the Registrar of Companies a filing fee to increase my authorised share capital. Is that fee deductible as revenue expenditure?
  No. The Supreme Court held that the fee paid to the Registrar of Companies for expansion of a company's capital base is capital expenditure. Although the enlarged capital incidentally helps the business and may help it earn profits, the outgoing was directly related to the expansion of the capital base and keeps that character. Deciding a conflict between the High Courts on a reference made directly to it under section 257, the Court preferred the line of decisions in favour of the Revenue over the Madras view in Kisenchand Chellaram. The question was answered against the assessee.
• Prakash Cotton Mills P Ltd v CIT Supreme CourtCuts both ways
  The AO disallowed a payment because the statute calls it a penalty. Does the label decide it?
  No. Where a statutory impost paid as damages, penalty or interest is claimed under s.37(1), the officer has to examine the scheme of the statute that imposed it and decide whether it is compensatory or penal in substance, whatever it is called. If it is purely compensatory the deduction must be allowed; if the impost is composite, the compensatory and penal parts have to be separated and only the compensatory part allowed.
• Bikaner Gypsums Ltd v CIT Supreme CourtHelps taxpayer
  I paid to have a railway station moved off my own mining lease so I could work the ground under it. Is that capital expenditure?
  No. The Supreme Court held the payment was revenue expenditure and restored the Tribunal's order. Where an assessee already has the right to carry on a business, expenditure incurred in the course of that business to remove a restriction, obstruction or disability is on revenue account, provided no capital asset is acquired. The company already held the mining rights over the whole leased area, including the ground under the railway. Its Rs 3 lakh share of the cost of shifting the station and track bought it no fresh right to any mineral and no capital asset; it removed an obstacle to working what it already had.
• Alembic Chemical Works Co Ltd v CIT Supreme CourtHelps taxpayer
  I paid a foreign firm a lump sum for technical know-how that raised the yield of a product I was already making. The Assessing Officer says section 37(1) is shut because I bought an asset of enduring benefit. Is the payment capital?
  Not on these facts. The Supreme Court held that the outlay was for the better conduct and improvement of the existing business and was therefore revenue. It reached that by refusing to treat the once-for-all payment and the enduring benefit as decisive: those ideas are not statutory conditions, there is no single definitive criterion, and what matters is the purpose of the outlay and its intended object and effect, judged in a common-sense way with regard to business realities. In a fast-moving field the know-how itself may lack the durability an enduring capital asset needs.
• CIT v Associated Cement Companies Ltd Supreme CourtHelps taxpayer
  I built a water supply system for the local town and handed it to the municipality, and in return my factory stays outside municipal limits for fifteen years. Is that spending deductible?
  Yes. The Supreme Court held the expenditure was on revenue account and deductible. Nothing was added to the company's capital assets and its capital structure was unchanged: the pipelines and installations belonged to the municipality, not to the company. The only advantage the company got was immunity, under normal conditions, from municipal rates and taxes for fifteen years - and had those rates been payable they would have been revenue outgoings, so the advantage lay in the field of revenue and not of capital. Applying Empire Jute, an enduring advantage does not by itself make expenditure capital. The Revenue's appeal was dismissed with costs.
• Scientific Engineering House (P) Ltd v CIT Supreme CourtHelps taxpayer
  I paid a foreign collaborator a lump sum for drawings and designs that let me start manufacturing. Is that capital spending on which I can at least claim depreciation?
  Yes. The Supreme Court held that the payment was capital expenditure by which the assessee acquired technical know-how, and that the know-how, in the shape of drawings, designs, charts, plans, processing data and other literature, is plant within section 43(3) and so a depreciable asset. The test is functional: does the article fulfil the function of a plant in the assessee's trading activity, and is it a tool of his trade? These documents were the basic tools with which the manufacture was begun, and collectively they are a book. That they perform no mechanical operation does not matter. The appeals were allowed.
• Empire Jute Co Ltd v CIT Supreme CourtHelps taxpayer
  I paid another mill to take over part of its production quota so I could run my plant for longer. The benefit lasts a while - does that make it capital expenditure?
  No, not on this reasoning. The Supreme Court held that the payment for loom hours was revenue expenditure allowable as a deduction. No new asset was created and nothing was added to the profit-making apparatus; the assessee was merely enabled to operate the same machine for longer hours. The enduring benefit test is not conclusive - what matters is the nature of the advantage in a commercial sense, and only an advantage in the capital field makes the outlay capital. An advantage that merely facilitates trading operations or allows the business to be run more efficiently or profitably, leaving the fixed capital untouched, is on revenue account even if it endures.
• CIT v Piara Singh Supreme CourtHelps taxpayer
  The department is taxing me on income from an unlawful activity. Can I set off what the authorities confiscated from me in the course of that same activity?
  Yes. The Supreme Court held that where the department taxes a person on the income of a smuggling business, the confiscation of the currency notes used in that business is a deductible loss. Detection by the customs authorities and confiscation are incidents as predictable in such a business as any other feature of it, so the loss springs directly from carrying on the business and is incidental to it - the same in principle as if the notes had been stolen or dropped on the way. The Revenue's appeal was dismissed with costs.
• Sassoon J. David & Co P Ltd v CIT Supreme CourtHelps taxpayer
  The AO says the payment mainly benefited someone else. Does that destroy my business expenditure claim?
  No. 'Wholly and exclusively' does not mean 'necessarily', and the fact that somebody other than the assessee is also benefited does not come in the way of the deduction if the expenditure otherwise satisfies the test laid down by law. It is ordinarily for the assessee to decide whether an expenditure should be incurred in the course of its business.
• Madhav Prasad Jatia v CIT Supreme CourtHelps department
  I borrowed on overdraft to honour a personal donation rather than sell my shares. Can I deduct the interest as it protected my income-earning assets?
  No. The Supreme Court held that interest on money borrowed to meet a personal obligation is not deductible, either as interest on capital borrowed for the purpose of business or as business expenditure. The borrowing here was completely unrelated to the purpose of the business and was actually used for making charity. The argument that the overdraft was drawn on to avoid selling shares did not make the borrowing a business borrowing. The Court also refused a deduction for interest credited on the unpaid part of the donation, since no trust in favour of the college had come into existence. The appeals were dismissed with costs.
• CIT v Rajendra Prasad Moody Supreme CourtHelps taxpayer
  I borrowed to buy shares and paid interest, but the shares paid no dividend this year. Can I still deduct the interest?
  Yes, on the section as it then stood. The Supreme Court held that section 57(iii) looks to the purpose of the expenditure, not to its result. The expenditure must be laid out wholly and exclusively for the purpose of making or earning income, but nothing in the section requires that purpose to fructify into a return, and it does not say the expenditure is deductible only if income is in fact made. The plain construction of the words is that no income need actually have been earned. The Court rejected the Revenue's argument that the narrower wording of section 57(iii), compared with section 37(1), makes the deduction conditional on income arising.
• Morvi Industries Ltd v CIT Supreme CourtHelps department
  My company gave up its managing agency commission by a board resolution because the managed company was in losses. The resolution came after the commission fell due but before it was payable. Is it still taxable in my hands?
  Yes. The Supreme Court held that income accrues when it becomes due, and that postponing the date of payment bears only on the time of payment, not on accrual. Under the agency agreement the commission fell due on 31 December each year and was payable only after the managed company's accounts were adopted in general meeting. The board resolutions giving up the commission and the office allowance came after the amounts had fallen due. Since the assessee kept its books on the mercantile system and gave the amounts up unilaterally after accrual, they remained part of its total income.
• Lakshmiji Sugar Mills Co P Ltd v CIT Supreme CourtHelps taxpayer
  We contributed to a government fund for developing the roads our raw material travels on. Is that capital expenditure because a road lasts for years?
  No. The Supreme Court held the contributions were revenue expenditure. The roads were the Government's before and after the improvement, the assessee bore only part of the cost, and the object was to let sugarcane move more easily from the cane centres to its mills. That is expenditure incurred for running the business with a view to producing profits, not for bringing into existence an asset or advantage of enduring benefit to the assessee. The Tribunal had made no finding that the roads were to be built afresh or that any enduring benefit would accrue. The deduction was allowed.
• Kedarnath Jute Manufacturing Co Ltd v CIT Supreme CourtHelps taxpayer
  I never made a provision in my books for the demand, and I am disputing it in appeal. Can I still deduct it?
  Yes. Whether a deduction is available is decided by the Act, not by what the assessee wrote or failed to write in the books, and not by the view the assessee takes of his own liability. A sales tax liability that had accrued on the demand being raised was deductible under the mercantile system even though no entry had been made for it and the assessment was under appeal.
• Dalmia Jain & Co Ltd v CIT Supreme CourtHelps taxpayer
  I was sued over the property I work my business on and lost. Are my legal costs deductible, or capital because the case was about title?
  Deductible. The Supreme Court held that the test is whether the expenditure was incurred to create a new asset or to maintain the business: the first is capital, the second revenue. The assessee did not start the litigation; it was dragged in and damages were claimed against it because it was working the quarry at the time. The only reasonable inference was that it defended the suit to protect its business, not to safeguard its prospects of a new lease. Following Shree Meenakshi Mills, deductibility depends on the nature and purpose of the proceeding, not on its outcome.
• CIT v Ciba of India Ltd Supreme CourtCuts both ways
  I pay my foreign parent a percentage of sales for the right to use its patents, trade marks and know-how while our agreement runs. Is that revenue expenditure or capital?
  Revenue. The Supreme Court held the contributions paid by Ciba of India to its Swiss parent were allowable under section 10(2)(xv) of the 1922 Act. The assessee acquired merely the right to draw on the Swiss company's technical knowledge for a limited period in running its business; the Swiss company parted with no asset and the assessee acquired no asset or advantage of an enduring nature. The claim under the scientific research provision failed, because money paid to recoup another's research spending is not expenditure laid out by the assessee on research relating to its own business. A separate claim for a share of patent litigation costs also failed.
• CIT v Gemini Cashew Sales Corporation Supreme CourtHelps department
  Our firm dissolved and the business passed to the surviving partner. Can the firm deduct the retrenchment compensation that became payable to the workmen on that transfer?
  No. The Supreme Court held that Rs 1,41,506 debited as gratuity payable to workers was not allowable, either as a deduction in computing business profits under section 10(1) or as expenditure under section 10(2)(xv) of the 1922 Act. Liability to pay retrenchment compensation on a transfer of an undertaking arises on the transfer and not before; while the business continues the workmen's right is contingent, since a workman may resign, die or retire. The liability therefore arose not in the course of the business nor for the purpose of carrying it on, but from the transfer, and was not of a revenue nature.
• Bombay Steam Navigation Co (1953) Pvt Ltd v CIT Supreme CourtHelps taxpayer
  I bought the assets of my business and left part of the price outstanding on interest. Is that interest deductible as interest on borrowed capital?
  Not as interest on borrowed capital, but yes as business expenditure. The Supreme Court held that an agreement to pay the unpaid balance of the purchase price does not give rise to a loan: a loan produces a debt, but not every debt involves a loan, and capital borrowed in the interest clause means money lent. So the claim under section 10(2)(iii) of the 1922 Act failed. The Court then allowed the whole interest under section 10(2)(xv). Acquiring the assets was closely related to the commencement and carrying on of the business, so the interest was expenditure laid out wholly and exclusively for that business and was not capital expenditure.
• CIT v Malayalam Plantations Ltd Supreme CourtHelps department
  The AO says my expenditure did not earn me any income, so it fails s.37(1). Is that the test?
  No. 'For the purpose of the business' is wider than 'for the purpose of earning profits', and expenditure does not have to produce income to qualify. But the width has a limit that the same case supplies: the expenditure must be incurred by the assessee in his capacity as a person carrying on the business. Estate duty the company paid on the deaths of its non-resident shareholders failed that limit — it was paid as a statutory agent for someone else — and was not deductible.
• CIT v Shoorji Vallabhdas & Co Supreme CourtHelps taxpayer
  I credited commission in my books at the contracted rate but agreed during the year to take a lower rate. Am I taxed on the higher figure?
  No, on these facts. The Supreme Court held that where the agreement itself is altered during the previous year so that the income which accrued and was received is the smaller amount, the larger figure never resulted as income at all, and a book entry cannot make it taxable. Income-tax is a levy on income; the Act fixes two points of time, accrual and receipt, but the substance is the income. The Court distinguished income actually received and later given up, which may still be taxed, from income that never resulted.
• Haji Aziz and Abdul Shakoor Bros v CIT Supreme CourtHelps department
  Customs confiscated my imported goods and I paid a fine to get them released. Can I deduct that fine as a business expense?
  No. The Supreme Court held that a payment made as a penalty for a breach of the law is not expenditure laid out wholly and exclusively for the purpose of the business. A deduction must be a commercial loss, something within commercial contemplation; infraction of the law is not a normal incident of business. The Court rejected the argument that a fine paid in lieu of confiscation of the goods is different because it is levied against the stock-in-trade rather than the person: the distinction between a personal liability and a liability on the goods is not sustainable.
• CIT v Chandulal Keshavlal & Co Supreme CourtHelps taxpayer
  I gave up part of the commission my firm had already earned to help the company I manage stay afloat. Can I still claim the amount given up as a business deduction?
  Yes. The Supreme Court held that a managing agent who voluntarily gave up Rs 2,09,114 of accrued commission at the managed company's request could deduct it under section 10(2)(xv) of the 1922 Act (now section 37(1)). The Tribunal had found the amount was given up on grounds of commercial expediency, not as a bounty, and that a stronger managed company meant larger commission for the agent later. That finding was one of fact, supported by evidence, so neither the High Court nor the Supreme Court could disturb it.
• Calcutta Co Ltd v CIT Supreme CourtHelps taxpayer
  I sell developed plots and book the whole sale price on the mercantile basis, but I still have to build the roads and drains I promised the buyers. Can I deduct the estimated cost of that work now?
  Yes. The Supreme Court allowed the land developer to debit Rs 24,809, the estimated cost of development work it had covenanted in the sale deeds to carry out, in the year it credited the full sale price of Rs 43,692. The undertaking in the deeds was unconditional, so the liability had accrued even though nothing had been spent. Difficulty in estimating the amount was no reason to call an accrued liability contingent. Even if no clause of section 10(2) of the 1922 Act covered it, the deduction was allowable under section 10(1) — now section 28 read with section 37(1).
• Indian Molasses Co (Private) Ltd v CIT Supreme CourtHelps department
  My company paid a lump sum to trustees to buy a deferred annuity so a director would get a pension after he retires. Can I deduct what I paid in the year I paid it?
  No. The Supreme Court held these payments were not 'expenditure' at all under section 10(2)(xv) of the 1922 Act (now section 37(1)). Money is expended only when it is paid out or away irretrievably. Here the trust deed and the policy let the trustees surrender the annuity for a capital sum, and returned all premia if both nominees died before the option date, so the company retained dominion over the money through the trustees and a resulting trust in its favour was possible. That is money set apart against a contingent liability, not expenditure.
• Badridas Daga v CIT Supreme CourtHelps taxpayer
  My employee embezzled money from the business bank account. Can I write that off for tax?
  Yes, as a trading loss, provided the loss springs from the way the business is carried on. The Court refused the claim as a bad debt and refused it as expenditure, and then allowed it under the charging provision itself, because profits of a business cannot be computed without taking account of losses incidental to that business. The route matters: this is a deduction in computing profits, not an item of expenditure under s.37(1).
• Assam Bengal Cement Co Ltd v CIT Supreme CourtHelps department
  I pay an annual fee to keep competitors out of my area. It recurs every year, so is it revenue expenditure?
  No, not on these facts, and recurrence does not decide it. The Supreme Court held that annual protection fees of Rs 5,000 and Rs 35,000 paid to the lessor of limestone quarries, in return for undertakings not to let anyone else use limestone in the area for cement, were capital expenditure. What the company acquired was the right to carry on its business free of competition in the area - an advantage of enduring benefit for the business as a whole, not a working expense. The aim and object of the expenditure determines its character; the source and the manner of payment are of no consequence.
• Ambalal Sarabhai Enterprises Ltd v DCIT High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has swept my gratuity and leave encashment payments into the s.35DDA five-year spread along with the VRS compensation. Must terminal benefits be amortised too?
  No. The Gujarat High Court held that gratuity and leave encashment are post-retirement benefits accruing from actual service rendered, payable whether retirement is voluntary or on superannuation, and are ancillary to — not part of — the voluntary retirement scheme. Only the VRS compensation component falls into the one-fifth spread under s.35DDA; the terminal benefits are deductible in full.
• PCIT v Drisha Impex (P) Ltd High CourtHelps department
  The Tribunal gave me a small percentage addition on disputed purchases. Can the department get the whole disallowance back on appeal?
  Yes, where the file is empty. The Bombay High Court set aside the Tribunal's 3% estimate and restored the Assessing Officer's disallowance of the whole of the disputed purchases under s.69C, and the assessee's SLP was dismissed. What decided it was a list of documents that were not produced: no evidence of actual delivery of material, no supplier confirmations, no audited accounts, no quantitative details and no correlation between the purchases and the sales.
• CIT v Biocon Ltd High CourtHelps taxpayer
  My company issued shares to employees under an ESOP at below market price. Can we deduct the discount, even though no cash went out?
  Yes, on this decision. The Karnataka High Court held that the discount on issue of shares under an employees stock option plan - the difference between the market price on the date of grant and the offer price - is allowable under section 37(1). Section 37(1) permits deduction of expenditure laid out or expended and does not require a payout, nor does it envisage expenditure in cash; expenditure includes a loss. Because the options vest at 25 per cent a year, the liability arises in the accounting year and only its quantification is deferred, so it is an ascertained and not a contingent liability. The Revenue's appeal was dismissed.
• Pr. CIT v Shivpal Singh Chaudhary High CourtHelps taxpayerJudgment not reachable
  The relief where the payee has paid the tax came in from 2013. Can I use it for an earlier year?
  Yes. The Punjab & Haryana High Court held the second proviso to s.40(a)(ia) declaratory and curative, and therefore retrospective from 1 April 2005, so where the resident payee has offered the income in its return and paid tax, no disallowance can be made.
• PCIT v Mobisoft Tele Solutions P Ltd High CourtHelps taxpayerNo later treatment found
  My proprietary concern was taken over by a company and the proprietor took some cash as well as shares. The AO is invoking s.47A(3) against the company. Can he, when we never claimed s.47(xiv)?
  No. The Punjab and Haryana High Court held that s.47A applies only if it is established that s.47 was pressed into service; in the absence of any finding that s.47 was invoked to claim exemption from capital gains on the succession, the deeming provision in s.47A(3) cannot be invoked. On the facts, s.47(xiv) had no application at all because the proprietor had received cash consideration of Rs.5,81,231, contrary to proviso (c), and had not received shares as consideration for the brand name.
• CIT v Herbalife International India Pvt Ltd High CourtHelps taxpayer
  I paid administrative fees to my US group company without deducting TDS and the officer has disallowed the whole amount under section 40(a)(i). Can I use the treaty's non-discrimination article?
  Yes, for years before the 2005 amendment. The Delhi High Court held that section 40(a)(i), as it stood for assessment year 2001-02, disallowed a payment to a non-resident for failure to deduct tax while an identical payment to a resident carried no such consequence. That lack of parity in deductibility is discrimination under Article 26(3) of the India-US treaty. Section 90(2) makes the treaty prevail, and the Court rejected the argument that a comparison needs a matching provision in the treaty. The Rs.5.83 crore administrative fee was allowed and the Revenue's appeal dismissed.
• CIT v Cushman and Wakefield (India) P Ltd High CourtCuts both ways
  The Transfer Pricing Officer says my group companies gave me no benefit and has put the arm's length price at nil. Can he decide that, and can the Assessing Officer still disallow the payment after the reference?
  It depends on who is deciding what. The Delhi High Court held that the jurisdictions are distinct. The Transfer Pricing Officer determines the arm's length price of the referred transaction, and may find it to be nil if a comparable independent entity would pay nothing, but he cannot decide whether services were rendered or whether a benefit accrued - that is disallowance, and it belongs to the Assessing Officer under section 37. Equally, a reference to the Transfer Pricing Officer does not concede the deduction: the Assessing Officer can still verify whether the transactions are real, though he is bound by the arm's length price the Transfer Pricing Officer has approved. Both findings of the Tribunal were set aside and the matter remanded.
• CIT v EKL Appliances Ltd High CourtHelps taxpayer
  The Transfer Pricing Officer says our royalty to the parent is worth nil because we have been making losses for years — can he wipe out the whole payment?
  No. The Delhi High Court held on 29 March 2012 that a Transfer Pricing Officer must price the transaction the associated enterprises actually entered into, not decide whether they should have entered into it. Rule 10B(1)(a) does not authorise disallowance because the expenditure was unnecessary, imprudent or unremunerative, or because the assessee kept making losses. The quantum can be examined, but wholesale disallowance on that reasoning is not contemplated. The OECD guidelines allow a transaction to be recharacterised only in two exceptional cases, and neither applied. Brand fee of Rs.3,42,97,940 and Rs.3,99,51,000 for the two years was restored to the assessee.
• Millennia Developers (P) Ltd v DCIT High CourtHelps departmentNo later treatment found
  I paid a 'regularisation fee' to the municipal corporation for deviations from the sanctioned plan. The Assessing Officer says it is a penalty. Can I deduct it?
  Not if the payment is made under a power to COMPOUND an offence. The Karnataka High Court held that a fee paid under Bye-law 6.0 of the Bangalore Mahanagara Palike Building Bye-laws to regularise construction deviations is an amount paid to compound an offence under s.483(b) of the Karnataka Municipal Corporations Act 1976, is therefore a penalty whatever it is called, and can never qualify for deduction under s.37.
• CIT v Bharat Aluminium High CourtHelps taxpayer
  One machine in my block of assets was not used this year. Can the AO deny depreciation on it?
  No. Once assets are clubbed into a block they lose their individual identity and become an inseparable part of the block, so 'used for the purpose of business' means use of the block and not of any specific item. User of an individual asset is required only in the first year in which that asset is acquired.
• CIT v Majestic Auto Ltd High CourtHelps taxpayer
  The Assessing Officer wants to push my consultancy fee into s.35D and spread it over five years instead of allowing it as revenue expenditure. Can he, just by calling it a survey?
  Not without showing the expenditure actually falls within one of the categories in s.35D(2). The Punjab and Haryana High Court rejected the Revenue's attempt to bring a management consultant's fee for a study on reorganisation of the assessee's core business within s.35D(2)(a)(iii), 'conducting market survey or any other survey necessary for the business of the assessee', because nothing in the pleadings or the orders below showed the engagement was aimed at conducting any survey. The Tribunal's finding that the expenditure was revenue was upheld and the appeal dismissed.
• CIT v Gabriel India Ltd High CourtHelps taxpayer
  The Commissioner has issued a section 263 notice saying my assessment order does not discuss a deduction the officer allowed. Is a brief order by itself erroneous?
  No. The Bombay High Court held that an order is erroneous only if it is not in accordance with law, or was passed without any enquiry in undue haste. Where the officer raised a query, got a written explanation and allowed the claim on it, his order cannot be branded erroneous merely because he did not discuss the matter elaborately or because the Commissioner would have decided differently. And the Commissioner must himself reach a finding that the order is erroneous and prejudicial before he sets it aside; he cannot simply remit the point for the officer to look at again.
• Sun Pharmaceutical Industries Ltd v DCIT ITATHelps taxpayerNo later treatment found
  My company settled a US patent suit for a very large sum. Can the Assessing Officer disallow it under Explanation 1 to s.37(1) as a payment for something prohibited by law, when the law is a foreign law?
  For years before AY 2022-23, no. The Ahmedabad Tribunal held that Explanation 1 as it stood did not extend to alleged infractions of foreign law, and that Explanation 3, inserted by the Finance Act 2022, operates only prospectively and has no application to AY 2014-15. It also held the settlement payment to be compensatory and not penal, and that the disallowance deserved to be deleted.
• Standard Chartered Bank v ACIT (Mumbai Tribunal, 2026) ITATCuts both waysNo later treatment found
  The officer has treated expatriate salaries paid by our London head office as head office expenditure and capped them under s.44C. Is that correct, and does the treaty's non-discrimination article get me out of s.44C altogether?
  On the first question, no. Section 44C restricts only executive and general administrative expenditure incurred outside India in connection with the management of the non-resident's affairs; salary of expatriate employees deputed to and working exclusively for the India branch is not head office expenditure merely because the head office paid it first. On the second, the Tribunal declined to hold that Article 26(2) of the India-UK treaty knocks out s.44C in every case — that has to be decided on the nature of the expenditure and the facts, read with Article 7(4).
• DCIT v IPCA Laboratories Ltd ITATCuts both waysNo later treatment found
  After Apex Laboratories, has the Assessing Officer to disallow my entire sales promotion budget as freebies to doctors, or only part of it?
  Only part of it, and only after a head-wise examination. The Mumbai Tribunal upheld a Commissioner (Appeals) order that confined the Explanation 1 disallowance to expenditure on travel facilities and hotel accommodation for medical practitioners, and allowed patient detection and education camps, symposiums and exhibition stalls, sponsorship of trade bodies, journals and periodicals, field printing, taxi hire for the company's own field staff and nominal brand recall items. Both the assessee's appeal and the Revenue's appeal on this issue were dismissed.
• DCIT v Abhinandan Stock Broking Private Ltd ITATHelps taxpayerNo later treatment found
  The Assessing Officer has cut my company's s.80GGB deduction down to 7.5 per cent of average profits, relying on s.182 of the Companies Act 2013 and on the Supreme Court's electoral bonds judgment. Is he right?
  No, on this decision. Section 80GGB contains no monetary ceiling and does not import the limits in s.182 of the Companies Act 2013. The Tribunal also held that the Supreme Court's decision in Association for Democratic Reforms striking down the 2017 amendment to s.182 does not operate retrospectively, so electoral bonds subscribed before that judgment cannot be disallowed on that basis.
• DCIT v AIA Engineering Ltd ITATHelps taxpayer
  I paid a sum to settle a patent infringement suit abroad. The Commissioner (Appeals) applied Explanation 3 to s.37(1) to disallow it for an earlier year. Can Explanation 3 be applied retrospectively?
  No. The Ahmedabad Tribunal held that Explanation 3 to s.37(1), inserted by the Finance Act 2022 with effect from 1 April 2022, widens the scope of the disallowance to the detriment of the assessee and cannot be applied to AY 2014-15. It also held on the merits that 'prohibited by law' in s.37(1) covers an act or omission which is an offence or is declared illegal as being against public policy, societal welfare, ethical standards or the common good, and does not extend to an out-of-court settlement of a private civil dispute.
• Polynova Industries Limited v DCIT 14(1)(1), Mumbai ITATHelps taxpayerNo later treatment found
  An internal audit objection has produced a s.263 notice saying CSR spending is not voluntary and so is not a 'donation' at all for s.80G. Does that argument let the Commissioner revise my assessment?
  No, not while the point remains genuinely open. The Tribunal held that the eligibility of CSR expenditure for s.80G is a question on which Benches differ — the Bangalore and Kolkata Benches allow it, the Delhi Bench in Agilent Technologies disallows it — so an Assessing Officer who allows it has adopted one of two reasonably possible views and the s.263 jurisdiction does not arise.
• ELCA Cosmetics Pvt Ltd v DCIT — the RSU cost cross-charged by the overseas group company is an actual cash outflow and is deductible under s.37(1) ITATHelps taxpayer
  My Indian company reimburses its overseas parent for the cost of restricted stock units given to our employees, and we deduct tax on the perquisite in their hands. The Assessing Officer has disallowed the reimbursement as notional and capital. Is it deductible?
  It was held deductible on these facts — and the employees' side of this is stage one, the perquisite that arises when the group company's shares reach them, this entry being about the company's mirror-image deduction for the cost it bears. The Delhi Tribunal held that where the overseas group company grants its stock to the Indian company's employees and recovers the cost from the Indian company, the cost is an actual cash outflow and not notional or contingent, and the compensation paid in the form of employee stock option expenditure is allowable as expenditure incurred wholly and exclusively for the purposes of business. Ground 2 of the appeal was allowed.
• Striton Properties Private Limited v DCIT ITATCuts both waysNo later treatment found
  I have claimed depreciation on plant and machinery used at a club house and garden. The Assessing Officer says I showed no income from letting them out and is not the owner of the facilities. Can I still claim depreciation under s.57?
  No. The Mumbai Bench held that s.57(ii) has to be read with s.56(2)(ii) and (iii), and that on a conjoint reading the income must actually be chargeable under the head income from other sources before depreciation can be claimed against it. Since no income had been shown, the mandatory condition was not fulfilled and the disallowance was upheld.
• Garware Technical Fibres Ltd v DCIT ITATCuts both waysNo later treatment found
  The addition rests on a pen drive seized in the search and no s.65B certificate was drawn at the time. Does that kill it?
  No, not on these facts, and the reason is narrower than the headlines. The Commissioner (Appeals) called for a remand report, the Assessing Officer produced a certificate under s.65B(4) for the pen drive, and the assessee - which had never taken the point before the Assessing Officer - made no counter-comment when the certificate was put to it. On the record as the Commissioner (Appeals) found it the certificates had been drawn at the time of the search and were merely produced late. In the absence of any contrary material the addition based on the pen drive was upheld, for all eight years. The order was not otherwise against the assessee: on quantum it confined the tax to the profit element in the unrecorded receipts and directed year-by-year percentages, and on the weighted deduction it allowed the whole of the revenue expenditure for one year.
• Anand NVH Products P. Ltd. v DCIT — R&D spend the DSIR would not certify still comes off under s.37(1) ITATHelps taxpayerNo later treatment found
  The DSIR certified less than my client spent, and the Assessing Officer has disallowed the excess both under s.35(2AB) and under s.37(1). Is the excess simply lost?
  No. For AY 2017-18 the Delhi Tribunal held that s.37 is the primary basis on which an expense debited in the books falls to be considered before any disallowance under s.35(2AB) arises, and that where part of the expenditure has been allowed on the basis of Form 3CL the remainder should be allowed as revenue expenditure. Both the Assessing Officer and the Dispute Resolution Panel were held to have fallen into error in refusing it, and the grounds were allowed. Note what the assessee did not argue: it did not challenge the restriction of the weighted deduction itself to the DSIR's figure, so the case is authority for the fallback and not for attacking the quantification.
• Rameshchandra Balachand v JCIT (OSD) ITATHelps taxpayerNo later treatment found
  The officer says my partner is a sleeping partner because she is not in the office every day. Can he disallow her remuneration?
  No, on these facts — but the case is decided on a wider ground first. For five of the seven years the disallowance fell on jurisdiction: those years were unabated when the search took place, and a statement recorded under s.132(4) is not incriminating material capable of supporting an addition under s.153A. On the merits, taken in the alternative and carrying the remaining two years, the Tribunal held that not attending the office daily does not make a partner a sleeping partner where the work she did was proved, and noted that the remuneration was taxed in her hands under s.28(v). The disallowance was made under s.37 as expenditure not for the purposes of the business, not under s.40(b).
• Bosch Ltd v ACIT ITATHelps departmentNo later treatment found
  You paid interest on a delayed payment to an MSME supplier. Can you claim it?
  No, and the Tribunal decided it by adoption rather than by reasoning. Counsel accepted that an identical issue had arisen in the assessee's own case for assessment year 2010-11, and the Bench reproduced its earlier order of 16 September 2020, which held that s.23 of the MSMED Act specifically provides that interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income, that such interest is penal in nature and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of inconsistent provisions in any other law. The Bench's own holding is one sentence at para 73: following that order, it dismissed Ground No.11.
• Mahindra & Mahindra Limited v ACIT ITATHelps taxpayerNo later treatment found
  The Bench decided against me without dealing with the binding High Court decision I had cited. Is that a mistake apparent under section 254(2)?
  The Mumbai Tribunal held that it is. Non-consideration of a decision of the jurisdictional High Court constitutes a mistake apparent on the record warranting rectification under s.254(2). On the same application it also corrected a factual error, where its order had recorded a ground as not pressed although it had been given up only for a different assessment year.
• JMS Mining Pvt Ltd v PCIT-2, Kolkata ITATHelps taxpayer
  I added back my company's CSR spend under Explanation 2 to s.37(1) and then claimed 50 per cent of it under s.80G. The Commissioner says s.37 blocks that and has revised the assessment under s.263. Is he right?
  No. Explanation 2 to s.37(1) operates only while computing business income under Chapter IV-D; it says nothing about Chapter VI-A, so a CSR contribution that independently satisfies s.80G remains deductible under s.80G. Parliament carved out only two CSR items in s.80G itself — clauses (iiihk) and (iiihl), the Swachh Bharat Kosh and the Clean Ganga Fund — and by expressio unius that exclusion implies every other qualifying donation survives.
• NXP India Pvt Ltd v DCIT — the Dispute Resolution Panel's theory that the employee is charged at VESTING, so the employer's stock compensation cost must be disallowed for non-deduction, did not survive; but the Tribunal's own reasoning will not bear weight ITATHelps taxpayerNo later treatment found
  The Dispute Resolution Panel says that because ESOP expenditure is allowable to the employer at vesting, the perquisite must be taxable in the employee's hands at vesting too, and has disallowed our stock compensation cost because we deducted only on exercise. Is there authority on that?
  There is one order on stage one — the perquisite that arises on employee share benefits — and it went against the Panel, but a practitioner should read it with care. It concerns the Panel's argument that the employee's charge follows the employer's deduction to the vesting date. The Bangalore Tribunal allowed the assessee's ground and deleted the disallowance of Rs 65,23,426 of stock compensation expense. Its stated reason, however, rests on the Supreme Court's decision in CIT v. Infosys Technologies Ltd., which construed the law as it stood before 1 April 2000, and the concluding paragraph contradicts itself on whether that decision applies. The value of the order is that the Panel's vesting theory did not prevail; its reasoning is not a foundation for advice.
• Tata Power Co Ltd v ACIT ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed our contribution to a local school under s.40A(9) because it is a payment to an institution. Does s.40A(9) really catch staff welfare spending of this kind?
  Not on these facts. The Mumbai Tribunal held that payments to local schools near the company's remote generating stations, where the employees' children study, are a staff welfare measure and are deductible, following the jurisdictional Bombay High Court in PCIT v State Bank of India. The disallowance of Rs 38,85,333 under s.40A(9) was deleted.
• Embio Ltd v. ACIT 15(1)(2), Mumbai (ITAT Mumbai) — where production falls below fifty per cent of installed capacity, the Rule 9C relaxation is applied for and the withdrawal is confined to the correct year ITATHelps taxpayerNo later treatment found
  We got the section 72A set-off in year one, then production collapsed and we fell below fifty per cent of installed capacity. Can the Assessing Officer withdraw the set-off, and if so for which year?
  The Tribunal restored the issue to the Assessing Officer to be decided afresh following the coordinate bench decision in Bayer Material Science, and directed him in terms to consider the assessee's submission that withdrawal of the loss or depreciation, if any, can be only in the year under consideration. The order is therefore a remand on the merits, not a decision that the assessee wins; its value is that it fixes the framework — Rule 9C is to be applied on the Bayer construction, and the year in which the set-off is taken back is a question to be decided, not assumed. The order also records the machinery a taxpayer in this position should use: the assessee had applied to the Central Government under Rule 9C for an extension of the time for achieving the minimum fifty per cent production beyond the stipulated four years, on the ground of labour unrest.
• Dalal & Broacha Stock Broking Pvt Ltd v Addl CIT (Special Bench) ITATHelps departmentNo later treatment found
  My closely held company paid commission to its three working directors, who are also its only shareholders. The Assessing Officer says s.36(1)(ii) bars it because no dividend was declared. Is that right?
  The Mumbai Special Bench held it was. Where the recipients are shareholder-employees and, on the facts, a reasonable management would have declared dividend, the commission is 'in lieu of dividend' and s.36(1)(ii) disallows it — and s.37(1) cannot be used as an alternative route to allow the same payment.
• Statutory position — s.35(1)(i): revenue expenditure on scientific research needs no approval and is allowed in full CBDT Circulars & InstructionsCuts both ways
  The DSIR would not certify part of my client's research spend. Is there a provision that allows it without any approval at all?
  Yes. Section 35(1)(i) allows, in computing business income, "any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business". It carries no approval requirement of any kind — no DSIR approval of a facility, no Central Government approval of an institution — and no weighting: the deduction is the expenditure, at a hundred per cent. It is the natural fallback wherever a weighted claim under s.35(2AB) is cut down to the figure in Form 3CL, and since AY 2021-22 it gives exactly the same number as s.35(2AB) for revenue expenditure, because the s.35(2AB) proviso has taken that deduction down to the expenditure incurred.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.