TaxTMI 
TaxTMI 
2017 (10) TMI 1587
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....ssee during this period, therefore, no question of allowing expenses. The impugned order was defended. 2.1 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared income of Rs. 1,05,99,100/- in its return filed on 31/07/2012, which was processed u/s 143(1) of the Act. Notice u/s 143(2) was served upon the assessee. The assessment was framed u/s 143(3) of the Act determining the total income at Rs. 1,16,79,830/- after making certain additions/disallowances by the Ld. Assessing Officer. 2.2. On appeal before the Ld. Commissioner of Income Tax (Appeal), the expenses amounting to Rs. 10,25,576/- were also affirmed on the plea that no business activity was carried out by the assessee during the relevant period. The assessee is in appeal before this Tribunal. 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the claimed expenses amounting to Rs. 10,25,576/- are broadly with respect ....
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.... nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and subsections (1) and (2) of section 32 and subject to the provisions of section 38 ; (iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less. Explanation.-For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death ; (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income; (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section". 2.5. If the provision of the Act, which is corresponding to....
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....827 (Cal); c) Premier Construction Co. Ltd. v. CIT, (1966) 62 ITR 176 (Bom); d) Liberty Cinema v. CIT, (1964) 52 ITR 153, 167 (Cal); Transport Co. Pr. Ltd. v. CIT, (1962) 46 ITR e) 1009, 1016 (Mad); Transport Co. Ltd. v. CIT, (1957) 31 ITR 259, 266-7 (Mad); f) G. Veerappa Pillai v. CIT, (1955) 28 ITR 636 (Mad); g) CIT v. Raman & Raman Ltd.,(1951) 19 ITR 558, 569-70 (Mad). Also see, Lachminarayan Modi v. CIT, (1955) 28 ITR 322 (Orissa); h) J. B. Advani & Co. Ltd. v. CIT, (1950) 18 ITR 557 (Bom); i) Mahabir Prasad & Sons v. CIT, (1945) 13 ITR 340 (Lah); j) Central India Spinning, Weaving & Manufacturing Co. Ltd. v. CIT, (1943) 11 ITR 266 (Nag); k) CIT v. Maharajadhiraja Sir Kameshwar Singh (1942) 10 ITR 214 (PC) l) Southern V. Borax consolidated Ltd. (1942) 10 ITR (Sup) 1 (KB) m) Associated Portland Cement Manufacturers Ltd. v. Kerr, (1946) 27 Tax Cas 103, 118 (CA) n) Ebrahim Aboobaker v CIT (1971) 81 ITR 664 (Bom.) 2.7. In the cases of defending the criminal litigation, we find that Section 37(1) does not make any distinction between expenditure incurred in civil litigation....
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....cquired foreign exchange and not fully utilising it for import were held not allowable although the partner was utlimately acquitted [CIT v. Chaman Lal & Bra .(1970) 77 ITR 383 (Delhi)]. This case was, however, distinguished in CIT v. Ahmedabad Controlled Iron & Steel Assn. Pr. Ltd., (1975) 99 ITR 567 (Guj), where expenses incurred by company in defending its managing director were held allowable. In order to so claim such expenditure the assessee has not only to prove that the expenditure was incidental to the business but also to show that the expenditure was laid out or expended wholly and exclusively for the purpose of the business [Indermani Jatia v. CIT, (1951) 19 ITR 342 (All) on appeal, see, (1959) 35 ITR 298 (SC)]. 2.9. Assessee defending an employee, etc.-When an employee is prosecuted in respect of transaction in the course of his employment, expenditure incurred in or about his defence is incurred for the protection of the good name of the business and is an allowable business expenditure [ J.B. Advani & Co. Ltd. v. CIT & EPT, (1950) 18 ITR 557 (Bom) considered in CIT v. H. Hirjee, (1953) 23 ITR 427 (SC), where the correctness of its ultimate decision was not doubted....
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....ainst former managing director for failure to account for amount belonging to the company-expenses for prosectuoin. 4) Lakshmiji Sugar Mills Co. Pr. Ltd. v. CIT, (1975) 98 ITR 568 (Delhi) [criminal case against director and employees for bribery-amount spent by company for defence of accused). 5) Parshva Properties Ltd. v. CIT, (1976) 104 ITR 631 (Cal) [expenses incurred in defending employees of the assessee-company in a criminal prosecution for violating Mines Regulations]. 6) CIT v. National Rayon Corporation Ltd., (1985) 155 ITR 413 (Bom) [expenditure incurred in defending a senior employee of the assessee was held deductible]. 7) CIT v. Indian Copper Corporation Ltd., (1986) 162 ITR 905 (Pat) [expenditure incurred in defending watchmen and other employees who guarded the premises of company]. 8) Atlas Cycle Industries Ltd. v. CIT, (1990) 181 ITR 18 (Punj) [expenditure incurred in connection with criminal litigation pertaining to criminal conspiracy commission of offence under the Essential Commodities Act, 1955, was held deductible]. 2.12. However, the amount spent in defending directors who were prosecuted under the Mines Act wa....
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....ls Ltd. v. CIT, (1974) Tax LR 395 (Cal)]; (7) in paying to Chartered Accountants giving advice regarding the scheme of amalgamation [New Commercial Co. Ltd. v. Addl. CIT, IT Ref. o. 40 of 1972 decided by the Gujarat High Court on 30-11- 1973]; (8) in defending disciplinary proceedings against the auditor [CIT v. Deccan Sugar & Abkhari Co. Ltd., (1976) 104 ITR 458 (Mad)]; (9) by the assessee-lessor-company in conducting winding up proceedings started against the lesseecompany [Associated Bombay Cinema P. Ltd. v. CIT, (1978) III ITR 942 (Bom)]; (10) in resisting transfer of shares without assigning or disclosing reasons [Harinagar Sugar Mills Ltd. v. CIT, (1979) 117 ITR 945 Born)]; (11) in attempting to prevent investigation into the affairs of the company [Harinagar Sugar Mills Ltd. v. CIT, (1979) 117 ITR 945 (Born)]; (12) by the assessee-amalgamated-company in reimbursing the amount of legal expenses incurred by the shareholders who attempted stayal of declaration of dividends [Raza Buland Sugar Co. Ltd. v. CIT, (1980) 122 ITR 817 (All)]; (l3) for the purposes of the amalgamation of two companies [Raza Buland Sugar Co. ....
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....ecompany [Cynamid India Ltd v. CIT, (1994) Tax LR 895, 897-98 (Bom)]. (24) in connection with amalgamation of one of the subsidiary companies of the assessee-company with the latter has been held of capital in nature because the purpose and object of incurring the expenditure was to alter the framework or the structure under which the assessee was carrying on its business and affected the profit-making apparatus [Jayashree Tea & Industries Ltd. v. CIT, (1995) 80 Taxman 169,175- 76 (Cal)]. (25) on account of legal and professional charges in connection with the merger of the company was held not deductible as revenue expenditure because there were no findings that the two companies were carrying on complementary business and the amalgamation was necessary for the smooth and efficient conduct of business [Triveni Engineering Works Ltd. v. CIT, (1998) 232 ITR 639, 645 (Del)]. (26) in connection with issuance of share certificates and bonds as a part of the amalgamation scheme [CIT v. Official Liquidator, Ahmedabad Manufacturing & Calico Printing Co. Ltd., (2000) 244 ITR 156, 160, 162-63 (Guj)]. 3.1. To sum of the issue we find that Hon'ble Justice P.D....
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....re must be treated as an allowable deduction; (ix) it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; the nexus must necessarily be between the expenditure incurred and the income earned; (x) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned; (xi) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bona fide for making or earning the income; (xii) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being one of law'. In the aforesaid propositions (vi) it has been clearly held/observed that incurring of legal expenses for preserving and maintaining of source of income would be allowable deduction. 3.2. Likewise, Hon'ble Apex Court in Sree Meenakshi Mills Ltd. v. CIT, (1967) 63 ITR 207 (SC), where expenses were....