TaxTMI 
TaxTMI 
1971 (7) TMI 2
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.... is : " Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that litigation expenses of Rs. 1,29,994 incurred by the assessee for the assessment year 1951-52 constitute expenditure laid out wholly and exclusively for the purpose of the assessee's business ? " The relevant facts as found by the Tribunal may now be briefly stated. The litigation expenses in question relate to the protracted litigation in respect of Murli Hills. Those Hills were owned by the State of Bihar. On April 1, 1928, the State Government gave a lease of those Hills to Kutchwar Lime Co. for 20 years for the purpose of quarrying limestone therein. In the lease deed entered into between the parties, there was a clause preventin....
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....ime Co. on June 2, 1949, that the Government had decided to lease Murli Hills to the assessee. The Government leased the Murli Hills to the assessee for one year from September 22, 1949, to September 22, 1950. Thereafter the Government appointed the assessee as the agent of the Government for working in the quarry with an understanding that the Murli Hills will be leased out to the assessee if the Government succeeds in the litigation. When the assessee-company was in possession of the Murli Hills as an agent of the Government, the Kalyanpur Lime Co. filed a suit for specific performance. In the alternative it claimed damages. In that suit the Kalyanpur Lime Co. impleaded the State of Bihar as well as the assessee as defendants. It is neces....
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....on the other hand, if it is held that the expenses were incurred to protect the business of the assessee, then it must be considered as a business loss. The principle which has to be deduced from decided cases is that, where the expenditure laid out for the acquisition or improvement of a fixed capital asset is attributable to capital, it is a capital expenditure but if it is incurred to protect the trade or business of the assessee then it is a revenue expenditure. In deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was incurred to create any new asset or was incurred for maintaining the business of the company. If it is the former it is the capita....
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.... well as against the assessee. What has been overlooked by the High Court is that the assessee did not get into the litigation of its own accord. It was dragged into the litigation by the Kalyanptir Lime Co. Further, the Kalyanpur Lime Co. had made a claim for damages against the assessee also. This litigation came to be instituted against the assessee because the assessee was working the Murli Hills. It was working the same at the time of the litigation. From these facts, the only reasonable inference that can be drawn is that the assessee resisted the suit in order to protect its business as opined by the Tribunal and not with a view to safeguard its propects of getting a new lease. At any rate, the view taken by the Tribunal on the fa....