Law: Income Tax Act, 1922

Section: 10,10(2)(xv)

[Indian Income Tax Act, 1922(XI of 1922)].......Section 10(2)(xv)-Business expenditure-Company-Expenses incurred in defending disciplinary proceedings against Auditors-Payment authorised by Articles of Association of company-Amount paid whether wholly and exclusively laid out for purpose of business-Held no-Whether allowable-Held no. The assessee-company paid to its auditors a sum of Rs. 16,854 being the amount incurred by them in defending certain disciplinary proceedings against them initiated at the instance of one of its shareholders in the matter of presentation of its accounts. The amount was paid by reason of article 196 of the company's articles of association. The claim of the assessee for deducting this amount as an expenditure under Section 10(2) (xv) of the Indian Income lax Act, 1922. was negatived by the departmental authorities but upheld by the Appellate Tribunal. On reference to the High Court at the instance of the department : Held, (1) that the disciplinary proceedings related to the auditors conduct is not correctly presenting the true picture of the Company's affairs to its shareholders as required by the Companies Act and hence was the direct result of the non-exercise of the necessary caution and prudence by the auditors which ought to have been exercised by them in such presentation; (2) the decision in the said disciplinary proceedings one way or the other would not have affected the company's interest in the least and hence the expenditure incurred for defending those proceedings were purely personal to the auditors as it was only in their interest to defend those proceedings; (3) the question whether the payment was authorised or not will not be relevant for deciding the question as to whether the expenditure had been incurred wholly or exclusively for the purpose of the business; (4) the payment made in the instant case had nothing to do with the conduct of the business by the company or its reputation ; and (5) the Tribunal was, therefore, in error in holding that the amount in question was an allowable deduction under Section 10(2)(xv). Cases referred to; CIT v. Ahmedabad Controlled Iron & Steel Reg. Stockholders Association…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492