2006 (10) TMI 133 - HC - Income Tax

Legal charges - Whether Tribunal was right in holding that the legal charges paid to M/s. A. F. Ferguson and Co., were not hit by section 80VV, and were not subject to the ceiling fixed u/s 80VV since payments were not made only for representation before the authorities but also for advice (consultancy) hence they are not hit by provisions of section 80VV order of tribunal is justified such legal expenses are allowable for deduction

Summary

Issues:
Deduction of legal charges under section 80VV of the Income-tax Act, 1961.

Analysis:
The case involved a question of law referred to the High Court by the Income-tax Appellate Tribunal regarding the deduction of legal charges amounting to Rs. 20,343 paid to a company. The Tribunal disallowed the deduction under section 80VV of the Income-tax Act, 1961, stating that the services were for representation before authorities and thus subject to the statutory ceiling. However, the High Court examined a similar legal position in a previous judgment and emphasized that fees paid to professional advisors are generally allowable. Citing a Supreme Court judgment, the High Court highlighted that expenses incurred for the preservation and protection of the business are justifiable if incurred honestly and for commercial expediency. The Court noted that section 80VV of the Act, which was in force during the relevant assessment year, limited such expenditures to Rs. 5,000. The Court also referred to precedents emphasizing that section 80VV only pertains to representation before authorities/court, while fees for general consultation may not fall under its purview.

The High Court further discussed the concept of retainer fees paid for general consultations, emphasizing that such fees cover various services and cannot be itemized. Citing case law, the Court highlighted that the deduction under section 80VV was permitted for specific proceedings related to tax liabilities under the Act. The Court noted that the Tribunal found the payment in question to be for both representation and consultation services. Consequently, the High Court upheld the Tribunal's decision to allow the deduction, as the payment was not solely for representation before authorities but also included consultation services. The Court concluded by answering the referred question against the Revenue and in favor of the assessee, disposing of the reference accordingly.