Retainer fee for legal and tax advice remains deductible business expenditure; apportionment under section 80VV was rejected.

A retainer fee paid to legal counsel for general legal and tax advice was treated as composite business expenditure, deductible under section 37 of the Income-tax Act, 1961. Because the payment was not shown to be item-wise attributable only to proceedings covered by section 80VV, it could not be apportioned and partly brought within that restrictive ceiling. The genuineness of the payment was not disputed, and the court held that a retainer fee for services kept available to the assessee cannot be split up to deny the deduction otherwise available under section 37. The proposed apportionment under section 80VV was therefore unsustainable.

---

---

Issues: Whether the assessee's retainer fee paid to legal counsel was deductible as business expenditure under section 37 of the Income-tax Act, 1961, or whether any part of it could be apportioned and brought within the ceiling and restriction of section 80VV of the Income-tax Act, 1961.

Analysis: The payment was treated as a retainer fee for general legal and tax advice, including wider matters of taxation and business-related consultations, and not as a separable fee item-wise linked only to proceedings covered by section 80VV. The Department did not dispute the genuineness of the payment. A retainer fee is a composite payment for services kept ready for the assessee's use, and such expenditure cannot be split up and partially shifted to section 80VV to deny the deduction otherwise claimable under section 37.

Conclusion: The assessee was entitled to claim the expenditure under section 37, and the proposed apportionment under section 80VV was unsustainable; the question was answered in the negative and against the Revenue.

---