1994 (3) TMI 52 - HC - Income Tax

Business Expenditure, Income From Property, Income Tax Act, Legal Expenses, Municipal Corporation

Summary

Issues:
1. Deductibility of repairs and reconstruction cess levied by the Bombay Municipal Corporation under section 23(1) of the Income-tax Act, 1961.
2. Deductibility of foreign traveling expenses incurred by the assessee as revenue expense in computing business income.
3. Justifiability of disallowance of a part of professional fees paid for drafting an agreement.
4. Admissibility of expenditure incurred in connection with litigation regarding import duty as a deduction in computing business income.
5. Treatment of gratuity exempt under section 10(10) for the purposes of disallowance under section 40A(5).

Analysis:

The first issue concerns the deduction of repair and reconstruction cess levied by the Bombay Municipal Corporation under section 23(1) of the Income-tax Act. The court held that such cess is a tax levied by the State Government in respect of the property, making it an allowable deduction in the computation of income from house property under section 23(1). Therefore, the court answered this question in the affirmative, favoring the assessee.

Regarding the second issue, the court examined the expenditure of Rs. 32,845 incurred by the assessee on foreign travel expenses of its employees. The court agreed with the Tribunal's decision that this expenditure was a deductible expense in computing the business income. Consequently, the court answered this question in the affirmative, supporting the assessee.

The third issue pertains to the disallowance of Rs. 5,000, which was part of the professional fees paid for drafting an agreement. The court found that this expenditure was incidental to the business activities of the assessee, thus justifying its allowance as a deduction. Therefore, the court answered this question in the negative, in favor of the assessee.

Regarding the fourth issue, which concerns the expenditure of Rs. 20,190 incurred in connection with litigation on import duty, the court determined that this was a revenue expenditure admissible as a deduction. The Tribunal's decision to allow this deduction was deemed justified, leading the court to answer this question in the affirmative, supporting the assessee.

The final issue involves the treatment of gratuity exempt under section 10(10) for the purposes of disallowance under section 40A(5). Citing a previous court decision, the court answered this question in the affirmative, favoring the assessee. Consequently, the reference was disposed of accordingly, with no order as to costs.