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TMI Blog1985 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, the assessee by its letter dated July 31, 1971, also claimed a deduction of the balance Rs. 47,117. The Income-tax Officer did not at all consider the claim for deduction of the balance of Rs. 47,117. In respect of Rs. 2,250, the Income-tax Officer held that as the amount had been paid for legal services in connection with the reconstruction and transfer of capital of Rivers Steam Navigation Co. Ltd. (hereinafter referred to as " the company "), a debtor to the assessee and for which the assessee acted as an agent. He found that the assessee had been considering writing off the debt of the company with a view to acquire shares of the latter by converting the loan. He, accordingly, disallowed the deduction as claimed. On an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assistance to the company from the Government of India to make the company a viable commercial unit. Only in the event of the success of this plan, the assessee could be in a position to recover its debt. The assessee persuaded the Government of India to enter into the aforesaid agreement, on the basis of which the assessee also purchased shares worth Rs. 30 lakhs in lieu of its debt. The value of the shares was practically nothing at the time of the purchase and the only hope of the assessee for recovering something out of the shares was if the debtor company succeeded in regaining its financial stability. The assessee incurred the expenses in executing its plan for getting the assistance of the Government of India. It could not be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand that it was the finding of the Tribunal that the legal expenses were incurred by the assessee to recover as much as possible of the debt and that the shares of the company were acquired only to secure the recovery of the debt of which there was no alternative prospect of recovery. He contended that the legal expenses were incurred not to bring into existence any asset or advantage of enduring nature but to secure a trading debt, the transaction was entered into in the usual course of the business of the assessee and the expenditure was incidental thereto. In support of the respective contentions of the parties, the following decisions were cited at the Bar: (a) Southern (H.M. Inspector of Taxes) v. Borax Consolidated Ltd. [1942] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the expenditure did not directly relate to the earning of income. Expenditure incurred for commercial expediency and indirectly to facilitate the carrying on of the business was also expenditure laid out wholly and exclusively for the purpose of trade. (c) Dalmia Jain Co. Ltd. v. CIT [1971] 81 ITR 754. In this case, the Supreme Court reiterated the principles laid down earlier in Sree Meenakshi Mills Ltd. [1967] 63 ITR 207 (SC). (d).CIT v. Ambika Mills Ltd. [1976] 104 ITR 669 (Guj). In this case, the assessee, a limited company, advanced money to another company in consideration of becoming the sole managing agent of the latter and for earning commission as managing agents. Thereafter, the assessee had to incur expenditure in li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately, the firm became insolvent. One of the partners of the debtor firm was the father of one of the partners of the assessee and also the father of two minors who had been admitted to the benefits of partnership of the assessee. The assessee wrote off the amount due as irrecoverable and claimed deduction thereof as bad debt. The claim was rejected by the Tribunal on the ground that the money advanced by the assessee to the debtor firm was not lent in the course of money-lending or any other business of the appellant. The Supreme Court ultimately disposed of the matter and the decision of the Tribunal was upheld on facts. (f) Empire jute Co. Ltd. CIT [1980] 124 ITR 1 (SC). In this case, the Supreme Court approved and quoted a decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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