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TMI Blog2000 (9) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of shares in their names and in connection with the writ filed by the company in the Bombay High Court challenging the legality of such registration. The Assessing Officer was of the opinion that: "Section 37 requires that expenditure must be incurred or laid out wholly and exclusively for the purposes of assessee's business. The expression "for the purposes of business" though is wider than the expression "for the purposes of earning profit" and it covers not only the running of the business or its administration but also the measures for preservation of business and protection of its assets and property. It cannot be so wide as to take within its sweep any other expenditure having no direct or proximate nexus with running of such business. The nexus had to be established between the expenditure incurred and the activity undertaken by the assessee which nexus is wanting in the present case. Registration of shares in the name of non-resident or in the name of somebody else does not affect in any way the running of assessee's business. As far as the company is concerned, its share capital would remain the same whether such capital is held by 'A' or 'B'. The conflict as is well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the RBI; (a) Enter any transfer or securities in any register or books in which securities are registered or inscribed or he has ground for suspecting that the transfer involves any contravention of the provision of this section." The authorised representative of the assessee submitted that any person contravening section 19(4) of the FERA 1973 under section 50 "... shall be liable to such penalty not exceeding five times the amounts or value involved in any such contravention". Besides this, under section 56, he is liable for imprisonment for a term which shall not be less than six months but which may extend to 7 years with fine. A reference was also made to the judgment of the S.C. relied upon by the CIT(A) in denying the relief to the assessee wherein at page 1391, the total amount of non-resident fund spent for purchasing Escorts Ltd. shares was Rs. 6.33 crores and in case, the penalty fine as above had levied on Escorts Ltd., the above would have been to the tune of Rs. 31.65 crore which is more than twice the share capital of the company which is at Rs. 14.17 crores. The total net worth of the company is Rs. 51.39 crores and if it had to pay a fine of Rs. 31.65 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such action as may be necessary including cancellation of the authorisation granted under section 6 of the Foreign Exchange Regulation Act." 19. Therefore, it was his submission that the Hon'ble Supreme Court vindicated the stand of the company and upheld its bona fide belief that there was something wrong with these purchases and detailed inquiry was necessitated by the RBI. Therefore, it was his argument that what action the company should take and whether they were entitled to refuse registration, what were its obligations under FERA were important questions which the company's internal department was ill-equipped to answer. For this purpose, the company sought legal opinion from legal luminaries and their Jurists through their solicitors M/s. J.B. Dadachandji & Co. further, it was his submission that even the Hon'ble Supreme Court to some extent reversed the decision of the Hon'ble Bombay High Court which is one of the premier judicial institutions of the country and the Bombay High Court had upheld all the pleas of the assessee which only goes to show that the assessee's litigation and its seeking of opinion was bona fide. 20. Reliance was placed on the following authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure under section 37 of the Income-tax Act. He placed reliance on the orders of the authorities below. To support its contention that such expenses are not incurred wholly and exclusively for the business purposes, reliance was placed on the following authorities:-- I . Albert David Ltd v. CIT [1981] 131 ITR 192 3 (Cal.) wherein it was held that the litigation was relating the offshoot of the disputes and quarrels between the two groups over the control of the assessee. The assessee-company was used as a spring board. It cannot be said that in the litigation the company was only seeking to preserve its book debts as business asset. It does not appear that the business exigencies required the assessee-company to file the suit. Hence, the expenses claimed are not allowable. 2. Premier Construction Co. Ltd v. CIT [1966] 62 ITR 176 (Bom.) wherein their Lordships held that the expenses were not allowable as the litigation related to a matter which concerned the share holders and the Board. Expenses were not incurred for carrying on the business of the company. Reliance was also placed on CIT v. Shiwalik Talkies Ltd [1967] 63 ITR 83 (Punj.) wherein their Lordships held that expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n partially by this Hon'ble Supreme Court. Accordingly, the assessee's suspicions were bona fide. It was his submission that the Hon'ble Bombay High Court had actually struck down the transfer completely and held that RBI could not give expost facto permission where prior permission was required. The Hon'ble Supreme Court upheld the right of the Government to retrospectively amend the law and even give ex-post facto permission under section 29(1)b), yet it indirectly held that the suspicions of the company were correct and the RBI needed to do a detailed investigation and inquiry into the whole matter of the acquisition of shares by the Caparo Group of Companies. 27. Reliance was also placed on CIT v. Indo Burmah Petroleum Co. Ltd [1983] 142 ITR 141 (Cal.). In this, the suits had been filed by shareholders and another company against the assessee-company, their managing agents, chairman and director. In the suits, there Were allegation of mismanagement for personal benefits by the Chairman and the managing agents. The suits were defended by the company and litigation expenses were also incurred by the company. The Calcutta High Court after considering the previous judgment relied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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