1992 (7) TMI 274 - HC - Income Tax

Summary

Issues:
1. Deductibility of legal charges for obtaining advice on shareholding dilution under the Income-tax Act.
2. Applicability of section 80VV on remuneration paid to a director for professional services.
3. Allowability of expenditure on presentation of wrist watches to employees as a business expense.

Detailed Analysis:

1. The first issue pertains to the deductibility of legal charges paid for obtaining advice on shareholding dilution under the Income-tax Act. The Tribunal allowed the claim as a revenue expenditure under section 37, but the High Court, following the decision in Avery India Ltd. v. CIT, held that such expenditure, regardless of compliance with the Foreign Exchange Regulation Act, is of a capital nature and not allowable under section 37. Therefore, the first question was answered in the negative and in favor of the revenue.

2. The second issue involves the applicability of section 80VV on remuneration paid to a director for professional services. The ITO disallowed a portion of the remuneration under section 80VV, but the Tribunal allowed the entire claim. The Tribunal held that section 80VV does not apply to remuneration paid for general advice in taxation matters and directed the full remuneration to be allowed as a deduction. The High Court upheld the Tribunal's decision, stating that the remuneration was not for services falling under section 80VV, thus answering the second question in favor of the assessee.

3. The final issue concerns the allowability of expenditure on presenting wrist watches to employees. The ITO and Commissioner (Appeals) disallowed the claim, but the Tribunal allowed it, considering the watches as an incentive to encourage punctuality and maintain good relations with employees. The High Court agreed with the Tribunal, emphasizing that the expenditure was incurred for the business's purpose and to maintain goodwill with employees. As there was no evidence of extra-commercial consideration, the expenditure was deemed wholly and exclusively for business purposes. Therefore, the third question was answered in favor of the assessee.

In conclusion, the High Court ruled on the deductibility of legal charges, applicability of section 80VV on remuneration, and the allowability of expenditure on employee gifts, providing detailed analysis and legal reasoning for each issue.