Taxability under statutory rates and deduction of legal expenses depend on proof of business nexus and statutory entitlement.

Income was assessable at the rates in force under the Finance Act, 1955, because a contractual concession in a 1938 agreement could not prevail once the territory became taxable under the Union regime; the earlier decision in the assessee's own case was treated as binding. Legal expenses were disallowed as revenue expenditure because the assessee failed to prove that the was incurred wholly and exclusively for business purposes and that it was not capital in nature. The claim was supported only by vague references to day-to-day legal advice, without material showing the subject-matter, business nexus, or basis of apportionment.

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Issues: (i) Whether the assessee's profits and gains for the relevant year were taxable at the rates in force under the Finance Act, 1955, or at the concessional rates stipulated in the 1938 agreement; (ii) Whether the legal expenses of Rs. 3,423 were allowable as revenue expenditure.

Issue (i): Whether the assessee's profits and gains for the relevant year were taxable at the rates in force under the Finance Act, 1955, or at the concessional rates stipulated in the 1938 agreement.

Analysis: The question had already been concluded in the assessee's own case for an earlier year, and the court treated that earlier decision as binding for the present reference. The contractual concession could not override the statutory rates applicable under the Finance Act once the territory became taxable under the Union regime.

Conclusion: The assessee's income was assessable at the rates in force under the Finance Act, 1955, and not under the 1938 agreement.

Issue (ii): Whether the legal expenses of Rs. 3,423 were allowable as revenue expenditure.

Analysis: To claim deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, the assessee had to prove that the expenditure was incurred wholly and exclusively for the purposes of business and was not capital in nature. The description of the services as day-to-day legal advice was too vague, and no material was produced to show the subject-matter of the consultations, the business purpose served, or the basis on which the group fee was apportioned among the companies.

Conclusion: The legal expenses were rightly disallowed and were not allowable as revenue expenditure.

Final Conclusion: The reference was answered against the assessee on both questions, and the Revenue succeeded on the issues decided.

Ratio Decidendi: A deduction for legal expenses is allowable only when the assessee proves, with supporting material, that the expenditure was incurred wholly and exclusively for the purposes of its business and is not capital in nature; a vague assertion of group legal advice is insufficient.

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