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Issues:
1. Allowability of deduction for legal charges incurred by a public limited company in defending a suit filed by shareholders. 2. Determination of nature of expenditure - revenue or capital. 3. Interpretation of statutory provisions under section 10(2)(xv) of the Indian Income-tax Act, 1922. 4. Comparison with relevant case laws to establish the nature of expenditure. Detailed Analysis: 1. The judgment addressed the issue of whether a public limited company could claim a deduction for legal charges incurred in defending a suit filed by shareholders challenging the validity of special resolutions passed at an extraordinary general meeting. The Tribunal found that defending the suit was necessary to maintain the normal running of the business, as the resolutions directly impacted the company's operations. The expenditure was considered allowable as it was incurred solely for the purpose of the business. 2. The court analyzed the nature of the expenditure to determine if it was revenue or capital in nature. It distinguished the case from a precedent where expenses for amending articles of association were considered capital expenditure aimed at enhancing the value of shares. In this case, the resolutions did not affect the capital structure or assets of the company, leading to a conclusion that the expenditure was not of a capital nature. 3. The judgment referred to statutory provisions under section 10(2)(xv) of the Indian Income-tax Act, 1922, to assess the allowability of the claimed deduction. It emphasized that the expenditure incurred in defending the suit was directly related to maintaining the business operations and was therefore deemed an allowable revenue expenditure under the mentioned provision. 4. To support its decision, the court compared the case with relevant precedents. It distinguished a case where expenditure incurred in legal proceedings was partially disallowed as the company's existence was not deemed to be threatened. In contrast, in the present case, the litigation jeopardized the business affairs of the company, necessitating the defense of the suit to safeguard business operations. The court found this distinction crucial in determining the allowability of the expenditure. In conclusion, the judgment ruled in favor of the assessee, allowing the deduction for the legal charges incurred in defending the suit filed by shareholders. The court held that the expenditure was allowable as it was solely aimed at preserving the normal conduct of the company's business operations.
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