Law:

Section:

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 - A foreign concern filed a suit against assessee alleging repudiation of contract by assessee in relation to supply of moulds - Court allowed suit of foreign concern and awarded damages of certain sum along with costs - Litigation expenses incurred by assessee in that suit was claimed as revenue expenditure allowable under section 10(2)(xv) of 1922 Act - Whether since litigation arose in course of proceedings for acquisition of capital asset, these litigation expenses were not expenditure allowable under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee-company was negotiating with a United Kingdom company, for supply of moulds required in the manufacturing of plastic goods by the assessee. The United Kingdom Company brought a suit for damages against the assessee claiming that the assessee had committed breach of contract in respect of the purchase of the moulds. The suit was decreed by the Queen Bench Division for £8,410 as damages along with £2,000 as costs. After the decision of the suit, which took place on 18-12-1953, there was a compromise between the two litigating parties under which the assessee agreed to accept moulds worth 6,000. A sum of Rs. 29,997 was incurred as litigation expenses in that suit by the assessee and the assessee claimed this amount as a revenue expenditure deductible from the income under section 10(2)(xv) of the 1922 Act. This claim was disallowed by the Tribunal. On reference : HELD In the instant case, it was clearly stated in the statement of the case that the transaction between the United Kingdom company and the assessee related to purchase of moulds which were being acquired in the nature of capital assets. The litigation occurred while the process of acquiring those moulds was still going on. There had been correspondence between the parties and, according to the United Kingdom company, some moulds were supplied to the assessee and the assessee wrongly refused to accept those moulds and committed breach of contract. Ultimately, the matter was settled by a…

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