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Issues:
- Whether legal expenses incurred in connection with a partnership dissolution suit are deductible under section 10(2)(xv) of the Indian Income-tax Act? Analysis: The case involved a partnership business with disputes among partners leading to a dissolution suit. The Subordinate Judge appointed a Receiver to carry on the salt business to protect assets and complete transactions left unfinished. The Receiver continued the business, and legal expenses of Rs. 5,371 were incurred by one partner, claimed as a deduction under section 10(2)(xv) during income tax assessment for the year 1944-45. The Tribunal was tasked to determine if these expenses were deductible. The Tribunal referred to the J.B. Advani & Co. Ltd. case, emphasizing that expenses protecting business assets in civil litigation are deductible. A subsequent Supreme Court decision in Commissioner of Income-tax v. H. Hirjee endorsed the deductibility of legal expenses in civil litigation related to business matters. The Court noted that the purpose of the legal proceeding in relation to the business determines deductibility under section 10(2)(xv), irrespective of the outcome. The Court distinguished an English case cited by the opposing party, holding that the principles from the Supreme Court decision were applicable in this case. The Court concluded that the legal expenses incurred in the partnership dissolution suit were for protecting the firm's assets during the transitional period. As the Receiver carried on the business to safeguard assets, the expenses were held to be revenue expenditure, deductible under section 10(2)(xv). The Court found it impractical to separate expenses related to the Receiver's appointment and partnership dissolution, considering them intertwined. Therefore, the entire legal expenses were deemed for protecting the firm's assets, making them a permissible deduction. The Court answered the Tribunal's question in the affirmative, allowing the deduction of Rs. 5,371. Costs were awarded to the assessee, with a hearing fee assessed at Rs. 200. In a concurring opinion, Misra, J., agreed with the analysis and the affirmative answer to the reference question, confirming the deductibility of the legal expenses incurred in the partnership dissolution suit under section 10(2)(xv) of the Indian Income-tax Act.
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