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TMI Blog1985 (5) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... shows were conducted by the assessee itself and so the assessee should be assessed in respect of the income arising therefrom. He was of the opinion that 10 per cent of the receipts would represent the income and so he added Rs. 6,457. 3. The Commissioner (Appeals) upheld the finding on slightly different grounds. He found that the maximum collections per show would be Rs. 2,218. So far 233 shows, the collections ought to have been Rs. 5,12,600. The assessee had shown only Rs. 64,574 which is only 12 per cent of the optimum collections. According to him, this was very meagre. On this additional ground, he had upheld the estimate. 4. The assessee is on further appeal before us. We must accept the findings of the ITO that the assessee had not proved hiring of the theatre to Shri Nagulu. The consequences would be that the collection of Rs. 64,574 will be accountable by the assessee only. The income embedded in this connection has to be properly assessed in the assessee's hands. We may make it clear that the Commissioner's finding that the collection is only 12 per cent of the optimum collection and, therefore, it is rejected is not supportable. The ITO has not rejected the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the firm and the other seven partners were carrying on the business of the firm. Shri Krishnamurthy filed a suit in the sub-court, Vizianagaram in Suit No. 68 of 1976. In that suit, he pleaded that the other partners had no right to unilaterally retire him from the partnership and that he never desired to be relieved from the firm. He prayed that the firm may be dissolved and accounts may be rendered. There was also another prayer for appointment of a receiver. The trial court disposed of the matter by their order dated 13-2-1980. As per the findings of the trial court, the retirement of Shri Krishnamurthy was illegal and void. The Court held that such termination of the partnership by the other partners had no effect at all in the eye of law. The Court further held that Shri Krishnamurthy must be deemed to have been continuing as partner till the partnership is determined in accordance with the provisions of the Indian Partnership Act, 1932. The Court also held that Shri Krishnamurthy is entitled to ask for the dissolution of the partnership as prayed for. The other partners were liable to render accounts to Shri Krishnamurthy towards his one-fifth share in the suit-firm in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded or debited with the expenditure. In such cases also, the line of distinction is to find out whether the business of the firm or the company would be impaired. If there is no impairment of the business, then those expenses are not allowable. If, however, the litigation impinges and affects the business of the firm or the company, then the expenditure will be allowable. The case laws which had considered litigation expenditure generated from the disputes of partners and shareholders fall on either side of the line drawn up. 13. We may mention the case where the Court considered that the litigation of the shareholders/partners which affected the business of the company/firm. In the case of Premier Construction Co. Ltd. v. CIT [1966] 62 ITR 176, the Bombay High Court was dealing with the disallowance of expenditure which the assessee had incurred for defending a suit. While disposing of the appeal, it was observed that if the litigation was purely in relation to a domestic quarrel between the shareholders and the board of directors it would be readily said that the company would not be justified in claiming the expenditure. However, in that case, they found that the suit filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by the company. There were also questions of mismanagement of the funds of the company. The High Court found that the primary object of the litigation was the carrying on of the business of the assessee and the litigation affected the business and, therefore, it was allowable as a deduction. 17. In contrast to the above list of cases, there are other authorities wherein the expenses were not allowed as a deduction because it did not affect the business of the company/the firm. We may refer to the decision of the Punjab High Court in the case of CIT v. Shiwalik Talkies Ltd. [1967] 63 ITR 83. Certain expenditure had been incurred for resisting an application by the shareholders of the assessee-company questioning the appointment of some of the directors. According to the High Court, the primary object of the litigation was as to who should be taken as the director of the company. They held that such an expenditure is not allowable because it did not affect the business. In the case of Ishwari Khetan Sugar Mills (P.) Ltd. v. CIT [1972] 86 ITR 635 (All.), litigation was generated by two groups of shareholders regarding the management of certain sugar mills. The High Court foun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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