TaxTMI 
TaxTMI 
1985 (2) TMI 69
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....mbay High Court. The ITO disallowed the claim on the ground that none of these expenses are relatable to the earning of the assessee's income from dividend. 2. On appeal, the Commissioner (Appeals) allowed the claim. According to him, the expenses incurred in connection with the wealth-tax and gift-tax proceedings were proper deductions having been incurred in preserving and in restricting the revenue's inroads against the income earning assets. The department has come up on appeal against the above order of the Commissioner (Appeals). 3. The learned counsel for the department has pointed out that the assessee does not carry on any business of her own. In the return, the claim was made against the gross dividends. According to the learned counsel, the assessee having no business of her own, the claim cannot be allowed under section 37 of the Income-tax Act, 1961 ('the Act'), nor can it be deducted in the circumstances of the case under section 57 of the Act. As regards the share income, the deduction of interest, if at all, can be made only under section 67 of the Act, which is also not possible in the present case. Any direction under section 37 has to be of an expenditure l....
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...., all going to show that an expenditure which does not directly relate to the earning of the income cannot be allowed. The Gujarat High Court in the case of Smt. Padmavati Jaykrishna v. CIT [1975] 101 ITR 153, and also Smt. Virmati Ramkrishna v. CIT and Smt. Arundhati Balkrishna v. CIT [1981] 131 ITR 659 (App.) elaborately deals with the cases and justify the non-allowance. Though reference could be made to the decision of the Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. v. CIT [1979] 116 ITR 301, it is pointed out that this decision was given on the peculiar facts of the case. 4. For the assessee it is pointed out that the question brought up for consideration was unusually restricted in scope. It was not correct to say that the assessee was not carrying on a business. She had substantial income by way of share from a firm. This is assessable under the head 'Profits and gains of business or profession'. The question, therefore, for decision referring to 'an assessee not carrying on business as such' does not bring out the correct factual position. Dealing with the actual disbursement, it is pointed out that the payment made to J.B. Dadachandji is justified by t....
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....ncy like the partnership. The decisions, therefore, concentrating on an allowance under section 57 above, would not in the circumstances of the case apply to the assessee. In India United Mills Ltd.'s case, the expenditure incurred by way of legal fees for conducting income-tax appeals and legal fees paid to solicitors for appearing before the Collector in connection with the threatened attachment of property in the course of recovery of income-tax demands was held by the Bombay High Court to be expenditure incurred for the preservation and protection of the business and incidental to the business. The expenditure was held deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922 ('the 1922 Act') corresponding to section 37 of the 1961 Act. Their Lordships relied on their earlier decision in the case of CIT v. Gannon Dunkerley & Co. Ltd. [1979] 119 ITR 595 (Bom.). In Century Spg. & Mfg. Co. Ltd.'s case their Lordships of the Bombay High Court had the occasion to consider the allowability as a deduction of professional fees paid with regard to the wealth-tax assessment in arriving at the total income of the assessee. Relying on the decision of the Supreme Court in the ca....
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....usiness' needs to be qualified by stating that if the expenditure is laid out by the assessee as owner-cum-trader, and the expenditure is really incidental to the carrying on of his business, it must be treated to have been laid out by him as a trader and as incidental to his business. " Dealing with a situation where an individual has both business assets and debts and non-business assets and debts, their Lordships observed that it should not be difficult to evolve a principle or statutory rules to find out the proportion of the tax which is really incidental to the carrying on of the assessee's trade. The clear position which arises out of these decisions is : Where the expenditure is personal and unconnected with business, it is not allowable. Where the expenditure is entirely relatable to the business, it is allowable. Where the person has a dual capacity of a trader-cum-owner and incurs an expenditure in connection with property used for the purpose of trade, the payment must be taken to be in the capacity of a trader according to ordinary commercial principles. Indian Aluminium Co. Ltd.'s case was dealing with the payment of wealth-tax on assets. Having in view the several....
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....ying on of the trade leaving the balance to be allowed against other sources. 8. The other claim is that of the deduction under section 57. For the department reliance was placed on the decision of the Gujarat High Court in Padmavati Jaykrishna's case where their Lordships followed their earlier decision in the case of Smt. Virmati Ramkrishna. This case considered elaborately the allowability of the legal expenses in the context of section 57 and came to the conclusion that such expenditure was not allowable. Their Lordships analysing the statutory language and the principles laid down in the decided cases made out 12 propositions [see page 672 of Smt. Virmati Ramkrishna's case]. In the light of the above propositions, the Court proceeded to examine whether the fees paid in connection with the income-tax and wealth-tax matters were proper deductions. In that case the assessee claimed deduction on account of interest deficit of a sum of Rs. 33,516. The interest was paid in respect of certain borrowings made by the assessee, which were utilised partly for investment in shares, etc., and partly for meeting personal liabilities like payment of income-tax and household expenses. Cons....