ESSO STANDARD EASTERN V. COMMISSIONER (TAX)

Issue: Whether the margin fees may be considered as ordinary and necessary business expenses.

Ruling: For an item to be deductible as business expense, the expense must be ordinary and necessary; it must be paid or incurred within the taxable year; and it must be paid or incurred in carrying on a trade or business. In addition, the taxpayer must substantially prove by evidence or records the deductions claimed under the law; otherwise, the same will be disallowed.

An expense is considered necessary when the expense is appropriate and helpful in the development of the taxpayer's business. It is ordinary when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances.

Assuming that the expenditure is ordinary and necessary in the operation of the business, the expenditure, to be allowable deduction as business expense must be determined from the nature of the expenditure itself and on the extent and permanence of the work accomplished by the expenditure.

Herein, ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. The petitioner merely assumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires, which is erroneous. Claims for deductions are matter of legislative grace and do not turn on mere equitable considerations.