TaxTMI 
TaxTMI 
2010 (11) TMI 379
X X X X Extracts X X X X
X X X X Extracts X X X X
....num and the standard rent being less than the actual rent received the assessee has offered Rs. 9,751/- being 50% share in the property and accordingly provisions of section 23 of the Act does not apply. The A.O. did not accept the above contentions. It was stated that Municipal Rent Control provisions are not applicable as the tenant is a limited company and the capital is more than the limit given under the Rent Control Act. Further the tenant company is also one of the group concern and related party. Since the rent declared was not higher than the sum for which the property might reasonably be expected the A.O. further enquiring from the locality revalued the property and determined the letting value at Rs. 3,60,000/- and arrived at the income form property chargeable to tax at Rs. 1,26,000/-. Since the assessee has offered an amount of Rs. 6,826/- the difference was brought to tax in both the assessment years. The same was contested before the CIT(A). The CIT(A) agreed with the valuation of the A.O. and confirmed the recomputation. 4. It was the submission of the learned counsel that the property was given in the year 1967 and in case of such tenancy the rent cannot be enhanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he contentions that the value adopted by the A.O. was also high. Since these issues require re-examination the matter is restored back to the file of the A.O. to decide accordingly. . . . . Issue of Legal Expenses 8. This issue arises in A.Y. 2004-05 wherein the assessee claimed an amount of Rs. 65,000/- towards legal and professional fees. On enquiry the assessee submitted that the payment is with reference to an Advocate, Mr. Ajay Majithia for representing the assessee against the order passed by the Directorate of Enforcement, Mumbai for alleging that assessee has made contraventions of provisions of section 9(1)(c) of the Act. The appellate Tribunal has granted 50% wavier of pre-deposit and directed to deposit the balance amount within 4 weeks from the date of receipt of the order. The order of the Tribunal has been challenged in the High Court. It was submitted that the expenditure is in the course of business and the same is allowable under section 37 of the Act. The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v. Dhanrajgiri Raja Narsinghraiji 91 ITR 544 and on the decision of Modi Sugar Mills Ltd. v. CIT 90 ITR 201. The A.O. disting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the assessee. The exact nature of the issue and the details of payments are required to be verified whether this expenditure is incurred by the company, M/s. Nitco Tiles Limited or by the assessee and whether the expenditure is pertaining to violation of FERA or with reference to customs duty. 12. The law on this issue can be examined with the principles laid down in various other judicial principles with reference to allowability of legal expenses relating to criminal cases in general as well as against the Director of a limited company in computing income of the limited company. 13. In the case of J.B. Advani & co. Ltd. v. CIT, 18 ITR 557 (Bom.), the assessee which was a private limited company in which the directors had a controlling interest had four managing directors. They and their manager were prosecuted in Madras for offences under the Hoarding and Profiteering Prevention Ordinance, 1943, and the charge against them was that on the 20th Jan., 1944, the company sold to the Superintendent of Stationery box-boards at Rs. 1-1-0 as against the landed cost of As. 3-10 per pound. The Chief Presidency Magistrate at Madras discharged all the accused. The directors and the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... because the assessee who is guilty of a breach of the law cannot be heard to say that the costs of the litigation against him was a permissible deduction because the commission of an offence was not necessary for the purposes of his trade. 14. Allowability of Expenses incurred on defence in a criminal prosecution in general, has been dealt with by their Lordship of the Supreme court in the case of CIT v. Hirjee (1953) 23 ITR 427. The assessee in the aforesaid case was carrying on business as selling agents of a company and was prosecuted under s. 13 of the Hoarding and Profiteering Ordinance, 1943, on a charge of selling goods at prices higher than that were reasonable in contravention of the provisions of s. 6 thereof. A part of the stock of the assessee was seized and taken away. The prosecution ended in an acquittal. The assessee claimed to deduct from the profits of business under s. 10(2)(xv) of the Act, a certain amount spent in defending the case. The Tribunal found that the expenditure had been incurred solely for the purpose of maintaining assessee's name as a good businessman and also to save his stock from being under-sold if the Court held that the prices charged by h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the assessee had incurred the expenditure in question for the purpose of business. The court explained the principle as follows: - "Section 10(2)(xv) of the I.T. Act, 1922 does not make any distinction between civil litigation and criminal litigation. All that the court has to see is whether the transaction in respect of which proceedings are taken arose out of and was incidental to the assessee's business. Further it has to be seen whether the expenditure in question was bonafide incurred wholly and exclusively for the purpose of business." 16. In CIT v. National Rayon corporation Ltd., 155 ITR 413 (Bom.) the facts were that one M who was the chief executive of the assessee company dismissed an employee of the assessee. The dismissal resulted in a tool down strike in the concerned department wherein the dismissed employee was working. The order of dismissal was suspended for ten days and the dismissed employee was permitted to put forward his defence under the settlement on negotiations with labour commissioner. After the settlement was reached M left the factory in his car and drove in his car towards his bungalow in the residential colony of the assessee. A big crowd outsi....