Business defence legal expenses deductible when prosecution arises from ordinary business operations and protects commercial reputation.

Legal expenses incurred to defend a criminal prosecution against a company's director and employees were held deductible where the prosecution arose from acts connected with the ordinary course of business and the expenditure was incurred wholly and exclusively for business purposes. The Court applied its earlier decision in the assessee's own case and treated the defence costs as necessary to protect the business's reputation and good name. The amount spent was not in dispute, and the deduction under the business expenditure provision was allowed in favour of the assessee.

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Issues: Whether the expenditure incurred by the assessee-company in defending a criminal case against its director and employees for bribery was an admissible deduction as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expenditure related to defence of employees in proceedings arising out of an act connected with the ordinary course of business. The Court followed the earlier decision in the assessee's own case and applied the principle that legal expenses incurred to protect the business's good name, where the prosecution arises from business operations, are incurred wholly and exclusively for the purposes of the business. The amount spent was not in dispute.

Conclusion: The expenditure was allowable as a deductible business expense, and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: Legal expenses incurred to defend employees in a prosecution arising from acts done in the ordinary course of business are deductible if they are incurred wholly and exclusively for the purposes of the business and to protect its business reputation.

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