1971 (5) TMI 21 - HC - Income Tax

The assessee is a limited company carrying on the business of plying motor vehicles on certain routes. In the assessment proceedings for the years 1958-59 and 1959-60 it claimed a deduction of Rs. 11, 681 an Rs. 29, 712 respectively on account of fees paid to its lawyers for representing its case before the State Transport Authority and also in certain writ petitions before the High Court. The assessee contended in that litigation that permits should not be granted to other private carriers on the routes assigned to the assessee. The Income-tax Officer and the Appellate Assistant Commissioner disallowed Rs. 5, 000 as a deduction for the assessment year 1958-59 and Rs. 25, 000 for the assessment year 1959-60. - Held that the expenditure incurred by the assessee over the fees paid to its lawyers for representing its case before the State Transport Authority and in the writ petitions before the High Court must be held to be admissible revenue expenditure.

Summary

Issues:
1. Whether the expenditure incurred on fees paid to lawyers for representing the case before the State Transport Authority and in writ petitions before the High Court is an admissible revenue expenditure?

Analysis:
The judgment pertains to a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the admissibility of expenditure incurred on legal fees by an assessee, a limited company operating motor vehicles, for representation before the State Transport Authority and in High Court writ petitions against the granting of road permits to other carriers. The dispute relates to the assessment years 1958-59 and 1959-60. The Income-tax Appellate Tribunal partially allowed the expenditure as revenue expenditure, prompting a reference by the Commissioner of Income-tax.

The court examined the memorandum and articles of association of the assessee, highlighting its role as a union of motor lorry owners aiming to protect their interests and earn a commission. The court noted the division of activities into "management section" and "union section," emphasizing the objective to safeguard the profits derived from plying motor vehicles. The litigation was seen as a means to protect the commission earned by the assessee and the income of its members, aligning with its purpose of promoting and protecting members' interests.

Addressing the argument that the expenditure aimed at preserving a monopoly, the court found no evidence of the assessee holding a monopoly over the routes. It dismissed the contention that the litigation primarily benefited the "union section" over the "management department," as the Tribunal's findings did not support such a conclusion. Ultimately, the court held that the expenditure on legal fees qualifies as admissible revenue expenditure, allowing the deduction claimed by the assessee.

In conclusion, the court answered the reference question affirmatively, ruling in favor of the assessee's claim for deduction of legal fees as revenue expenditure. The court awarded costs to the assessee and assessed counsel's fee at a specified amount.