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 - Assessee-company was engaged in business of cotton spinning and weaving - It was distributing a part of yarn produced to weavers outside factory to weave said yarn into cloth - Provincial Textile Commissioner issued an order directing assessee-company to deliver yarn to certain notified categories of persons only - Against said order, assessee-company filed writ petition in High Court and got certain relief - Amount spent by assessee in aforesaid litigation was claimed as business expenditure - Whether on facts, litigation expenses incurred by assessee-company were deductible under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee-company was engaged in the business of cotton spinning and weaving. In the premises of the factory of the company there were installed 80 handlooms. These handlooms were found inadequate to weave the yarn produced by the factory and a part of the yarn produced was distributed to weavers outside the factory who were engaged by the company to weave the yarn into cloth. Under clause 18B of the Cotton Cloth and Yarn (Control) Order, 1945, issued by the Government of India, the Textile Commissioner was authorised to direct any manufacturer or dealer or any class of manufacturers or dealers, inter alia, not to sell or deliver any yarn or cloth of specified description except to such person or persons and subject to such conditions as the Textile Commissioner might specify. On 7-2-1946, the Textile Commissioner issued an order directing the company not to sell or deliver any yarn manufactured by the company except to such person or persons as the Textile Commissioner might specify. The company continued notwithstanding the prohibition to deliver yarn to weavers and did so till 20-2-1946. This yarn was seized under the orders of the Textile Commissioner. On 20-2-1946, the Provincial Textile Commissioner issued an order directing assessee-company to deliver yarn to certain notified categories of persons only. The assessee filed a writ in the High Court and got relief. The amount…

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