Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1968-69 - Assessee, a managing company, amalgamated with managed company - Certain legal expenditure was incurred by assessee for getting approval of scheme of amalgamation - Whether expenditure had been incurred by assessee in their capacity as person carrying on business with object of carrying on business to their advantage and not for acquiring any capital assets of an enduring nature - Held, yes - Whether, therefore, expenditure, incurred was revenue in character and thus allowable - Held, yes FACTS The assessee was the managing agent of another company. It was handling the sales of managed company as their sole distributors. Both the companies filed an application before the High Court under section 394 of the Companies Act for approval of the scheme of the amalgamation and succeeded in that application. The share of assessee in the legal expenses for getting the scheme of amalgamation approved by the High Court was claimed by the successor-company as an item of revenue expenditure. The ITO disallowed the claim on ground that it was of the same nature as was incurred in the issue of shares at the initial floatation of the company and because the amalgamation of the companies resulted in an enduring advantage to the assessees by reducing the overhead costs, etc. This view was confirmed by the AAC. On second appeal, the Tribunal allowed the assessee's claim. On reference: HELD The expenditure had been incurred by assessees in their capacity as person carrying on the business with the object of carrying on their business to their advantage. The expenditure could not be stated to have been incurred for acquiring any capital assets of an enduring nature. The expenditure had been incurred with the object of getting more profits and it related to a period when the assessee-company was carrying on its business. Therefore, the Tribunal rightly held that the expenditure was revenue in character and should have been allowed by the assessing authority. Note : The decision is in favour of the assessee. CASE REFERRED TO CIT v. Malayalam Plantations Ltd. [1964] 53 ITR…

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