2. It is a residuary section. In order to claim deduction under this section, following
conditions should be satisfied.
The expenditure should not be covered by section 30 to 36.
For claiming deduction of an expenditure under section 37(1), it should be ensured that
the expenditure is not in the nature described by section 30 to 36. The rule is that if an
item of expenditure is covered under any of the aforesaid sections, the same cannot be
claimed under the residuary section.
3. Capital expenditures are not deductible under
section 37(1).
The act does not define the terms “capital
expenditure”.
4. Section 37(1) expressly prohibits deduction on account of
personal expenses. Personal expenses mean expenses satisfying
personal needs such as food, cloth, shelter, etc. which are not
related to business.
Money expended for domestic or private purpose, as distinct
from the purpose of the trade or profession, are not deductible.
Expenditure should not be personal expenditure
of the assessee
5. For the purpose of claiming deduction under section 37(1),
expenditure should be incurred for the purpose of the
business which is carried on by the assesse in the previous
year & profits of which are to computed and assessed and
expenditure should be incurred after the business is set up.
Expenses should be in respect of the business
carried on by the assessee
6. Any expenditure incurred by an assesse for any purpose which is an
offence or which is prohibited by any law shall not be deemed to
have been incurred for the purpose of the business or profession &
no allowance or deduction shall be made in respect of such
expenditure.
Unlawful expenditure is not allowable as deduction. These provision
apply only to ‘business expenditure’ & not to ‘business loss’.
Illegal Expenditure
7. In order to claim deduction, the amount should have been laid out or
expended in previous year. If a business liability has definitely arisen in
the previous year, the deduction should be allowed although the
liability may have to quantified and discharged at future date.
