Law: Income Tax Act, 1922

Section: 10(2)(xv)

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 1958-59 and 1959-60 - Whether where two disputing claimants claim title to business as a whole expenditure incurred as legal expense cannot be regarded as having been expended for purpose of business - Held, yes - Whether such legal expenses would not be allowable under provisions of section 10(2)(xv) of 1922 Act - Held, yes FACTS After death of the proprietor of a business it was rum as a joint family business. Latter on a deed of partnership came into existence and the daughter of S, was taken as a partner. The daughter (P) instituted a suit in the High Court seeking a declaration that she was solely entitled to the business. Other reliefs were also sought. The trial judge upheld the claim of the daughter 'P' in so far as the movables were concerned. The business asset was however held to belong to the HUF. On appeal, from that decision, a Bench of High Court held in favour of P, even with regard to the business assets. The ITO allowed legal expenses in the assessment year 1958-59. But the Commissioner after notice to the parties, held that the legal expenses were incurred in a dispute regarding the title to the business itself and was not for the protection of the business. He also held that the dispute was between the partners and that it covered not only this business asset but other non-business assets as well. According to him, the expenditure could not be said to have been incurred wholly and exclusively for the purpose of the business. HELD Shortly stated, the dispute in the suit was to declare the title to the business in its entirety. What High Court conceives to be the real scope of the allowance contemplated by the relevant provision is that the business regarded as an entity has to take steps and incur expenditure for the purpose of protecting itself against any inroads made upon its productive capacity, ownership of assets or the like. Where two disputing claimants claim title to the business as a whole, it does not appear that any such dispute would involve expenditure which…

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