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 - Assessment year 1958-59 - In a general meeting of assessee-company one of shareholder sought to raise certain queries related to financial and other matters of subsidiary companies of assessee but he was not allowed to do so by President of said meeting - Being aggrieved, said shareholder filed a suit before trial court praying for a declaration that ruling given by President was illegal and invalid and subsequent resolutions passed at said meeting was also invalid and asking for certain consequential relief - Trial Court while holding in favour of shareholders granted shareholder only a declaration that ruling given by president at general meeting was illegal - President as well as assessee appealed against order of trial court but appeal failed - Assessee claimed expenses of litigation incurred in suit before trial court as well as in appeal as a deduction - Whether reliefs, which plaintiff had prayed for, threatened seriously whole of business of assessee-company and assessee-company, in order to protect its business and in interest of carrying on its business, had necessarily to come forward and contest litigation and, thus, expenditure incurred by assessee in defending suit could be said to be an expenditure which was wholly and exclusively laid out for purpose of its business - Held, yes - Whether so far expenditure incurred in appeal was concerned, it related merely to correctness or legality of ruling given by president in its general meeting, and, thus, same could not be said to have been incurred wholly and exclusively for purpose of business of assessee - Held, yes - Whether, therefore, assessee would be entitled to expenses incurred by it by way of costs of trial court in respect of suit but it would not entitled to any part of expense which it incurred in connection with appeal - Held, yes FACTS The assessee was a public limited company. It had large shareholdings of several other companies and it held controlling interest in some of them. One of the shareholders of the assessee-company was…

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