Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment years 1952-53 to 1957-58 - Whether expenditure incurred by assessee in defending proceedings seeking to declare business of exhibiting pictures at cinema to be evacuee property, could be regarded as business expenditure deductible under section 10(2)(xv) of 1922 Act - Held, yes FACTS One 'R' being owner of several immovable properties including a cinema theatre, by an indenture, admitted his three sons, 'E', 'H' and 'A' as partners and the partnership firm became the monthly tenant of 'R' in respect of the cinema theatre and carried on the cinema business. Subsequently, pursuant to migration of 'H' and 'A' to Pakistan, 'R' expelled them from partnership so that 'R;' and 'E' (assessee) remained partners with equal shares. The properties of the two sons were also declared by the custodian of Evacuee Properties as evacuee properties. Meanwhile, in the proceedings taken against 'R', the custodian General declared him an evacuee, but this was later quashed by the Supreme Court. During the course of these proceedings, 'R' died and the assessee, being son, took over, and exercised the option to purchase R's interest in the partnership and to continue to carry on the business as the sole proprietor. In the meantime, the custodian issued a show cause notice to the assessee for terminating the monthly tenancy of the cinema theatre, but the High Court restrained the custodian from taking possession of the interests of the assessee and his sister in the cinema theatre and business. However, the custodian declared the properties of both the assessee and his sister as evacuee properties, but ultimately the custodian - General set aside the custodian's order. Thus, for the assessment years 1952-53 to 1957-58, the assessee having incurred considerable legal expenses in respect of the above proceedings, claimed the same as business expenditure. On second appeal, the Tribunal held that under the Evacuee Act the proceedings were primarily against the persons and not against his property, and, therefore, no part of…

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