TaxTMI 
TaxTMI 
1989 (2) TMI 19
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting the profits of the assessee's business ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal has been justified in law in holding that the payment of Rs. 50,000 made to Bomas Ltd. did not bring into existence an advantage of enduring nature and did not constitute an expenditure of capital nature ?" In this case, the assessment year involved is 1963-64 for which the relevant accounting period is the year ended on December 31, 1962. So far as the first question is concerned, the issue relates to an item of Rs. 12,365 which was disallowed by the Income-tax Officer on the ground that it did not represent expenditure wholly and exclusively incurred for the purpose of the business. The employees' union had f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ference was made to section 2(3) which specifically defines an officer to include an auditor for the purpose of certain sections of the Companies Act. One of such sections was section 633 of the said Act which dealt with any proceedings for default, breach of duty, negligence, etc., against any officer of the company. Considering the provisions of section 633 and section 2(3) of the Cornpanies Act, the Tribunal was of the view that the expenditure was bona fide incurred in the larger interests of the assessee's business, especially in view of the indemnity clause in the articles of association of the assesseecompany. Reference was made also by the Tribunal in this connection to the decision of the Punjab High Court in the case of J. N. Sing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wability of the legal expenses incurred by company came up for the consideration of the Supreme Court. That case related to both the civil and criminal proceedings. The criminal proceeding was about misappropriation of the company's funds as well as other fraudulent acts on the part of one Ramgopal Ganpatrai while managing the company. The assessee-company employed its own lawyers to prosecute the case. The prosecution culminated in the conviction of Ramgopal Ganpatrai. The Supreme Court held that the expenditure incurred by the company for the criminal and civil litigations was allowable. It was observed by the Supreme Court that (at p. 550) : ". . . It was for the assessee to decide how best to protect his own interest. It was the duty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....penalty imposed on the assessee for infraction of law could not be allowed as expenditure incurred in the course of carrying on of the business of the company, because that will be contrary to public policy. But in so far as the expenses incurred in defending the accused persons in respect of the acts alleged to have been committed by them in the course of employment of the assessee while carrying on the business of the assessee were concerned, unless it could be said that the expenditure was not incurred bona fide, in the interest of the company, the expenditure should be allowed in computing the total income of the assessee. It was held in that case that the expenditure was allowable. One of the persons who were involved in that case was ....