Law: Income Tax Act, 1922

Section: 10,10(2)(xv)

[Indian Income Tax Act, 1922(XI of 1922)].......Section 10(2)(xv)- Basiness expenditure-Proceedings before investigation Commission-Law charges incurred-Whether admissible deduction- Held yes it is well-settled by now that the deductibility of expenditure incurred in prosecuting the civil proceedings to resist the enforcement of a measure, legislative or executive, which means restriction on the carrying on of a business or to obtain a declaration that the measure is invalid, would, if other conditions are stisfied, be admissible as a deduction under Section 10(2)(xv). Deductibility of such expenditure does not depend on the final outcome of those proceedings. However, wrongheaded, ill-advised, unduly optimistic or over-confident in his conviction the assessee might appear in the light of the ultimate decision, expenditure in prosecuting a civil proceeding cannot be denied as a permissible deduction if it is reason ably and honestly incurred to promote the interest of the business. (See Sree Meenakshi Mills LTD. v. Commissioner of Income Tax (1967) 63 I TR 207. The essential test which has to be applied is whether the expenses were incurred for the preservation and protection of the assessees business from any such process or proceedings which might have resulted in the reduction of its income and profits and whether the same were actually and honestly incurred. It is not possible to understand how the expenditure on the proceedings in respect of the investigation Commission by the assessee will not fall within the above. Even otherwise, the expenditure was incidental to the business and was necessitated or justified by commercial expediency. it must be remembered that the earning of profits and the payment of texes are not issolated and independent activities of a business. These activities are continuous and take place from year to year during the whole period for which the business continues. lf the assessee takes any steps for reducing its liablity to tax which result in more funds being left for the purpose of carrying on the business there is alway a possibility of higher profits. To give an illustration if an assessee can, by an appropriate proceeding,…

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