Deduction u/s 10(2)(xv)/37(1) of Income-tax Act, 1922/1961. - Income Tax - 386/CBDT

INSTRUCTION NO. 386/CBDT Dated: March 1, 1972 Section(s) Referred: 37 , 10(2)(xv) of 1922 Act Statute: Income - Tax Act, 1961 Attention is invited to the Supreme Court Judgment in the cases of Birla Cotton Spinning and Weaving Mills and Birla Brothers Pvt. Ltd reported in 82 ITR 166. The Supreme Court in the above cases have held that the law charges incurred in connection with the proceedings before income-tax investigation Commission are allowable as deduction under section 10(2)(xv)/37(1) of Income-tax Act, 1922/1961. Even otherwise such expenditure is to be treated as incidental to the business and necessitated or justified by commercial expediency. The expenditure which was incurred by the assessee in opposing a coercive Government action with the object of saving taxation and safeguarding business was justified by commercial expediency and was therefore allowable under section 10(2)(xv) of the Income-tax Act, 1922. The Supreme Court in this case relied on the observations of Viscount Simon in the case of Smith Potato Estate (30 TC 237) to the effect that if the trader considers that the Revenue seeks to take too much share and to leave him with too little, the expenditure which the trader incurs to correct this mistake is a disbursement laid out of the purpose of his trade. On this point, the Supreme Court approved the judgments of the Calcutta High Court in the case of Calcutta Landing and Shipping Company Ltd. (77 ITR 575) and of the Bombay High Court in the case of R.B Bansi Lal Spinning and Weaving Mills (81 ITR 34) that such litigation expenses were allowable as deduction under section 10(2)(xv)/37 of the 1922/1961 Acts. In view of the above decisions, all legal accountancy expenses incurred in connection with the proceedings before the income-tax authorities right upto the stage of the Supreme Court will have to be allowed by way of deduction under section 10(2)(xv)/37 of the 1992/1961 Acts. The above instruction may please be brought to the notice of the officers working in the charge.