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Issues Involved:
1. Deductibility of litigation expenses under business expenditure. 2. Bona fide nature and exclusivity of litigation expenses for business purposes. 3. Connection of litigation expenses with the business activities and income generation of the assessee. Issue-Wise Detailed Analysis: 1. Deductibility of Litigation Expenses under Business Expenditure: The primary issue was whether the litigation expenses incurred by the assessee in Suit No. 487 of 1956 could be considered as allowable business expenditure under the relevant sections of the Indian Income-tax Act. - Assessment Year 1958-59: The Tribunal disallowed the litigation expenses of Rs. 2,60,619, stating that these were not incurred for the business of the assessee but were related to disputes between two groups of directors. - Assessment Year 1959-60: Similarly, the Tribunal disallowed Rs. 1,09,271 on the grounds that the expenses were not connected with the business activities of the assessee. - Assessment Year 1962-63: The Tribunal disallowed Rs. 6,25,000 as litigation expenses, reiterating that these were not incurred for business purposes but were due to internal disputes. 2. Bona Fide Nature and Exclusivity of Litigation Expenses for Business Purposes: The court examined whether the litigation expenses were incurred bona fide and solely for the business of the assessee. - Assessment Year 1958-59: The Tribunal found that the expenses were not bona fide or exclusively for the business, as the litigation was primarily due to personal disputes among directors. - Assessment Year 1959-60: The Tribunal upheld its previous finding, stating that the expenses were not bona fide or exclusively for business purposes. - Assessment Year 1962-63: The Tribunal concluded similarly, noting that the litigation was an offshoot of disputes over control and not for business exigencies. 3. Connection of Litigation Expenses with Business Activities and Income Generation: The court analyzed whether the litigation expenses had any direct or indirect connection with the business activities and income generation of the assessee. - Assessment Year 1958-59: The Tribunal held that the litigation did not interfere with the business of the assessee and was not related to business activities. - Assessment Year 1959-60: The Tribunal found that the expenses were not connected with the business carried on during the relevant previous year. - Assessment Year 1962-63: The Tribunal maintained that the litigation was related to personal disputes and not to the business activities or income generation of the assessee. Conclusion: The court upheld the Tribunal's findings across all assessment years, concluding that the litigation expenses were not incurred bona fide or exclusively for business purposes and were primarily due to personal disputes among directors. Consequently, the expenses were not allowable as business expenditure under the relevant sections of the Indian Income-tax Act. - Assessment Year 1958-59: Questions 1 and 2 answered in the affirmative and in favor of the revenue. - Assessment Year 1959-60: Question 1 answered in the negative, Questions 2 and 3 answered in the affirmative, all in favor of the revenue. - Assessment Year 1962-63: Question 1 answered in the affirmative, Question 2 answered in the negative, both in favor of the revenue. The reference was disposed of accordingly, with no order as to costs.
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