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 1953-54 and 1954-55 - Whether where on account of disputes amongst partners of assessee's managing agency firms, inter se litigation was initiated by one partner against other and assessee-company was made a party to such litigation, assessee could not claim deduction under section 10(2)(xv) of 1922 Act in respect of expenses incurred in such litigation - Held, yes - Whether where one of partners of managing agency firm was appointed as Controller of assessee-company by Central Government which was challenged by another partner by a writ petition, expenses incurred by assessee-company in defending said appointment could not be claimed as deduction under section 10(2)(xv) of 1922 Act even if assessee had been arrayed as petitioner in that writ petition - Held, yes FACTS Partnership firm DDSM was managing agent of the assessee-company and another firm DDC was managing agents of the other company MKS. In pursuance of mutual agreement between the partners of the two firms, OMK, partner of DDSM was entrusted with the management of assessee-company and KNK of DDC and other member of his group were entrusted with the management of MKS. In the year 1951 some disputes arose among the partners of the two managing agency firms. Consequently, OMK filed a suit against KNK and others and others in which the two companies were also impleaded as defendants. It was alleged by OMK that KNK in collusion with other partners and the shareholders of the two companies had sought to oust him from the management of the assessee-company and the other company. One of the reliefs in the suit was for appointment of receiver of the two companies until proper arrangements for protection of rights of OMK and his group were made by the court. On his application an interim receiver was appointed by the court. Against the ex parte order appointing receiver two appeals were filed in the High Court, one by the two companies and the other by KNK and others which were dismissed. Expenses incurred in the aforesaid litigation were…

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