1970 (2) TMI 40 - HC - Income Tax

Expenditure incurred for the preservation of the entire business as an entity and for defending against a claim of hostile title or against nationalisation - deductible under section 10(2)(xv)

Issues Involved:
1. Deductibility of litigation expenses under section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Classification of litigation expenses into three sets of proceedings.
3. Determination if the litigation expenses were incurred for personal protection or business protection.

Issue-wise Detailed Analysis:

1. Deductibility of Litigation Expenses under Section 10(2)(xv):

The primary issue was whether the litigation expenses claimed by the assessee for the assessment years in question were allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal initially disallowed the claim, asserting that the legal costs were incurred for the protection of the assessee's person rather than his properties or business. However, the court reframed the question to specifically address the three items mentioned in paragraph 8 of the statement of the case, ensuring clarity in the judgment.

2. Classification of Litigation Expenses into Three Sets of Proceedings:

The litigation expenses were classified into three distinct sets of proceedings:

First Set of Proceedings:
- Related to the declaration of Aboobaker as an evacuee.
- The Tribunal disallowed the expenses, stating they were for personal protection.
- The court noted that the Tribunal did not address incidental questions such as apportionment between the three sets of proceedings or whether the expenses were incurred wholly and exclusively for the business.

Second Set of Proceedings:
- Concerned the notice of termination of the tenancy of the Imperial Cinema by the Custodian.
- The court found that the Tribunal erred in its judgment by treating these proceedings as personal rather than business-related.
- The court emphasized that the dispute was between a landlord and a tenant, and the notice was an attempt to terminate the lessee's lease, directly impacting the business.

Third Set of Proceedings:
- Involved the declaration of the assessee's and Hawabai's properties as evacuee properties.
- The court analyzed whether these proceedings posed a threat to the business or merely to the person of the assessee.
- The court concluded that the expenses were incurred to protect the business and not just the person.

3. Determination if Litigation Expenses were Incurred for Personal Protection or Business Protection:

The court delved into the nature of the proceedings under the Administration of Evacuee Property Act, 1950. It was argued that the Act primarily concerned the property of the evacuee, not the person. The court observed that the Act's title and provisions indicate its focus on property management rather than personal status. The court also referenced the Supreme Court judgment in Ebrahim Aboobaker v. Tek Chand, emphasizing that the Act did not apply to the person of the evacuee but rather to their property.

The court rejected the contention that the expenses were incurred to protect personal rights, citing the Supreme Court's broader interpretation of "for the purpose of business" in Commissioner of Income-tax v. Malayalam Plantations Ltd. The court concluded that the expenses were indeed for the preservation of the business entity and thus deductible under section 10(2)(xv).

Conclusion:

The court held that the litigation expenses incurred by the assessee in defending the proceedings related to the declaration of the business of exhibiting pictures at the Imperial Cinema as evacuee property were deductible under section 10(2)(xv). The expenses were deemed necessary for the protection of the business, not merely personal protection. The respondent was ordered to pay the applicant's costs.

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