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1. Allowability of legal expenses under section 10(2)(xv) of the Indian Income-tax Act. Analysis: The case involved a dispute regarding the legal expenses of Rs. 3,900 and Rs. 6,480 and their allowance under section 10(2)(xv) of the Indian Income-tax Act. The deceased, Selvarajulu Chetty, was involved in a stevedoring business in Madras. After his death, his daughter, Padmini, claimed sole ownership of the business through a legal suit. The trial judge upheld Padmini's claim on movable assets but ruled the business asset belonged to the Hindu undivided family. Despite an appeal in favor of Padmini, the legal expenses incurred during the dispute became the subject of the current reference. The Income-tax Officer initially allowed these expenses in the assessment year 1958-59, but the Commissioner of Income-tax later disallowed them, stating the expenses were not solely for the business's protection. The dispute centered around whether the legal expenses incurred in a suit to establish the title to the entire business could be considered as wholly and exclusively for the business's purpose under section 10(2)(xv). The court analyzed the nature of the legal expenses in question. The counsel for the petitioner argued that any expenditure related to establishing the business's title or litigating to secure its maintenance should be allowable under section 10(2)(xv). However, the court found a fundamental fallacy in this argument, emphasizing that the provision aims at protecting the business entity against threats to its productive capacity or ownership of assets. In this case, the expenditure was incurred by contending parties seeking to establish their individual title to the entire business, not to protect the business entity itself. The court highlighted the distinction between expenses incurred to maintain an existing title and those aimed at acquiring or curing a defect in the title, noting that the former is of a revenue nature while the latter is of a capital nature. Moreover, the court referred to precedents such as Commissioner of Income-tax v. Raman and Raman, Veerappa Pillai v. Commissioner of Income-tax, and Transport Company Ltd. v. Commissioner of Income-tax to support its conclusion. These cases illustrated situations where litigation expenses were deductible under section 10(2)(xv) as they were incurred to retain or establish ownership of specific assets, unlike the present case where the dispute concerned individual interests of partners rather than the business entity itself. The court also cited Morgan (Inspector of Taxes) v. Tate and Lyle Ltd. to distinguish between threats to the assets of a business and threats to the right of the business owner to carry on the business, further supporting its decision to disallow the legal expenses in question. In conclusion, the court held that the legal expenses incurred in the suit to establish the title to the entire business were not wholly and exclusively for the purpose of the business under section 10(2)(xv) of the Indian Income-tax Act. The question was answered in the negative, ruling against the assessee, who was directed to pay the costs of the department along with counsel's fee of Rs. 250.
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