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of <h1>Company's Director Payment Deductibility Upheld for Litigation Costs</h1> <h3>G. Scammell and Nephew Ltd. Versus Rowles (H.M. Inspector of Taxes)</h3> G. Scammell and Nephew Ltd. Versus Rowles (H.M. Inspector of Taxes) - [1940] 8 ITR (E. C.) 41 Issues Involved:1. Deductibility of lb7,500 paid to a director.2. Deductibility of lb62 10s. 0d. paid towards litigation costs.3. Deductibility of lb53 10s. 0d. incurred in connection with a compromise agreement.Issue-wise Detailed Analysis:1. Deductibility of lb7,500 Paid to a Director:The first issue concerns whether the sum of lb7,500 paid by the Company to one of its directors, Mr. Hood Barrs, could be deducted for the purpose of ascertaining the Company's taxable profits. The payment was made to secure Mr. Hood Barrs' consent to a compromise agreement, which was deemed necessary to protect the Company from potential financial loss due to litigation initiated by Mr. Toms. The Court found that the payment was made for the purposes of the Company's trade, as it was directly connected with securing the compromise, which in turn aimed to safeguard the Company's financial interests. The Court concluded that the payment was wholly and exclusively laid out for the purposes of the Company's trade.2. Deductibility of lb62 10s. 0d. Paid Towards Litigation Costs:The second issue concerns the deductibility of lb62 10s. 0d. paid as a contribution towards Mr. Toms' litigation costs. This payment was also part of the terms of the compromise agreement. The Court held that this sum was a permissible deduction because it was a condition for securing the payment by Blue Belle Motors to the Company, thus directly benefiting the Company by enabling the compromise.3. Deductibility of lb53 10s. 0d. Incurred in Connection with a Compromise Agreement:The third issue involves the sum of lb53 10s. 0d. incurred in connection with the preparation of the compromise agreement. The Court ruled that if the compromise itself was for the purposes of the Company's trade, then the costs of preparing the deed are also deductible. Since the compromise was found to be for the purpose of securing payment of a trading debt, the associated legal costs were deemed deductible.Conclusion:The Court dismissed the appeal, agreeing with the lower court's finding that all three sums were deductible as they were wholly and exclusively laid out for the purposes of the Company's trade. The appeal was dismissed with costs, and leave to appeal was refused.
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