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Interpretation of section 10(2)(xv) of the Income-tax Act, 1922 regarding deduction of legal and traveling expenses incurred by a company. Analysis: The case involved the deduction of legal and traveling expenses amounting to &8377; 9,000 and &8377; 1,000, respectively, under section 10(2)(xv) of the Income-tax Act, 1922. The expenses were related to a situation where a company faced a petition for winding up due to forfeited shares, leading to a settlement with shareholders. The Income-tax Officer initially disallowed the &8377; 10,500 payment as ex gratia and the &8377; 1,000 traveling expenses. The Appellate Assistant Commissioner allowed only &8377; 1,500 for settling disputes. However, the Income-tax Appellate Tribunal later allowed both items. The main issue was whether these expenses were incurred wholly and exclusively for the purpose of the business of the company as per section 10(2)(xv). The court analyzed the wide scope of the expression "wholly and exclusively for the purpose of the business" based on a Supreme Court decision in Commissioner of Income-tax v. Malayalam Plantations Ltd. The court noted that the expenditure should be for the carrying on of the business and incurred by the assessee in their capacity as a business operator. In this case, the company's existence was under threat due to the litigation, making it necessary to defend the business, thus justifying the expenditure of &8377; 9,000 for legal fees. The court also referenced the House of Lords decision in Morgan v. Tate and Lyle Limited to support the notion that expenses incurred to preserve business assets and operations are admissible deductions. Ultimately, the court held that both the legal and traveling expenses were legitimately allowed under section 10(2)(xv) as they were incurred for the purpose of carrying on the business of the company. The Tribunal's decision to allow these expenses was upheld, and the respondent was awarded costs.
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