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 - Assessee-company made investment out of its surplus funds with a banking concern, and had to incur litigation expenses in order to get back its deposit through civil proceedings against bank - It also incurred expenses on criminal proceedings against its managing agent who was also partner in said banking concern - Tribunal disallowed claim on ground that asset in question not being a business asset, representing in substance its surplus funds, expenditure was not incurred for purpose of assessee's business - Whether any surplus capital of company not invested in fixed or circulating assets, does not cease to be its business asset - Held, yes - Whether once it is found that litigation expenditure pertain to recovery of a business asset, expenditure becomes admissible under section 10(2)(xv) of 1922 Act and therefore, civil litigation expenditure incurred by assessee-company in recovering fixed deposit and other amount due from bank was an allowable expenditure.- Held, yes - Whether however, even if one of reasons for launching criminal proceeding against managing agent was to put pressure on him to make good loss caused to assessee, expenditure in criminal litigation could not be said to have seen incurred wholly and exclusively for purpose of business as primary object of a criminal proceeding being to see that guilty person was punished - Held, yes - Whether, therefore, only that much amount would be admissible under section 10(2)(xv) of 1922 Act as represented expenses incurred on civil litigation and remaining expenses incurred on criminal litigation were inadmissible - Held, yes FACTS The assessee-company invested certain sum out of its surplus funds in fixed deposit with a non-scheduled banking concern. Later, having come to know that the insolvency petition had been filed against the bank by some creditors, the assessee filed a recovery suit but failed to realise any thing despite a decree in its favour. The assessee also filed a criminal case against the managing agent of assessee who was also a…

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