Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1972-73 and 1973-74 - Assessee-company was working under a lease with a renewal clause - Assessee gave a notice for its renewal and State resisted it - Dispute went up to High Court - Whether amount paid by assessee as decretal amount in compromising aforesaid dispute and as part of an arrangement for enabling it to continue its business was allowable as business expenditure - Held, yes FACTS The assessee-company was working under a lease with a clause for renewal. The assessee gave a notice of the renewal of the lease. The State resisted its attempt and the dispute went up to High Court. In compromising the dispute and as part of the arrangement for enabling the assessee to continue the business, it had paid certain amount as decretal amount. The assessee claimed it an allowable expenditure in computing its income. The Assessing Officer disallowed the assessee's claim. However, on second appeal, the Tribunal allowed the deduction. On reference: HELD In the assessee's own case for the assessment year 1962-63 wherein no reference application had been made, the Tribunal had found that the amount was not paid as a premium or salami for inducting the tenant into the property. The liability to pay arose in the course of carrying on the business. The assessee was working under a lease with a clause for renewal. It bona fide believed that it had a right to the renewal of the lease and gave notice of the rent and took all the steps it could in this behalf. The State resisted its attempt, but the assessee's bona fides were established by at the least the first Court accepting the claims. That the claim did not survive in the High Court only showed that two views could reasonably be taken qua the assessee's claim. It was clear that the assessee's claim was not just a frivolous one. In compromising a bona fide dispute and as part of an arrangement for enabling the assessee to continue the business, the amount had to be paid. But for this payment the assessee would have had to close down a part of its business. Following the of the Supreme Court in the case of "Travancore…

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