Law:

Section:

Section 57, read with section 58 of the Income-tax Act, 1961 (Corresponding to section 12(2) of the Indian Income-tax Act, 1922) - Income from other sources - Deductions - Assessment year 1958-59 - Assessee-company had purchased certain shares of a company - Certain shareholders filed a suit against said company alleging mismanagement by director of said company - Assessee also joined in said suit and incurred certain sum - Assessing authority disallowed assessee's claim of deduction under section 12(2) of 1922 Act - Tribunal while finding that assessee's claim for deduction was bona fide allowed part of said expenses - Whether since there was no finding that only a part of such expenditure was incurred for purpose of protecting its shares, entire expenditure was allowable - Held, yes FACTS 'MM' was a public limited company, having a share capital of Rs. 60,00,000 divided into 30,000 ordinary shares of Rs. 100 each and 30,000 preference shares of Rs. 100 each. Previously, one 'K' and 'T' were the managing directors of this company and they, along with the members of their family and friends, held the largest single block of shares in the company. Towards the end of the year 1945, they decided to leave India and sell away their shares. Their shares were purchased by 'M', 'S' and 'H'. They also purchased some more shares in the open market and by May 1947, they possessed 5,085 ordinary shares and 19,540 preference shares of the said company. Thereafter, they floated two private companies, viz., 'ITS' and 'CTC'. The 'ITS' was appointed as the managing agents and the 'CTC' as the selling agents of the 'MM'. Subsequently, there were differences between them and the entire lot of shares, which had been pledged with Hongkong and Shanghai Banking Corporation Ltd., as security for certain advances taken from that bank, were sold in auction on 18-4-1950. The bidders at the auction were 'BAI' represented by their director, 'L' and one 'B'. Ultimately, the highest bid of 'L' for Rs. 87,05,000 was accepted and thereupon 'BAI' came to be the owners of those 5,085 ordinary shares and 19,540 preference shares of the 'MM'. Although by the purchase at the auction 'BAI' owners of…

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