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Issues: Whether legal expenses incurred by a company in defending successfully its branch manager against a criminal breach of trust charge arising out of a transaction in the ordinary course of business were deductible as expenditure laid out wholly and exclusively for the purposes of business under section 10(2)(xv) of the Indian Income-tax Act, 1922.
Analysis: The expenditure related to the defence of an employee prosecuted for an act connected with a business transaction carried out in the normal course of the company's business. The Court distinguished cases concerning defence expenses of the proprietor or partner personally facing criminal prosecution, and also distinguished authority which treated the result of the prosecution as relevant. The governing test was the nature and purpose of the legal proceeding in relation to the business, and whether the expenditure was incurred to protect the business's good name in relation to an employee's act in the ordinary course of business.
Conclusion: The expenditure was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, and the question was answered in the affirmative in favour of the assessee.
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