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2017 (3) TMI 1183 - HC - Income TaxDeduction under Section 37 - legal fee and expenses incurred towards Professional Indemnity Insurance - legal fee paid was more than the compensation received - Held that:- The test to be employed for examining as to whether or not a particular expenditure incurred by an Assessee, be allowed, is that, which is, provided in Section 37 itself. Therefore, what is required to be ascertained is, whether or not, the expenditure in issue is laid out or incurred wholly and exclusively for the purpose of business, and that, it is not an expenditure, which is described under Sections 30 to 36 of the Act, or an expenditure in the nature of capital expenditure or, if, an Assessee is an individual, it involves defrayment of personal expenses. In ascertaining as to whether the expenditure has been laid out or expended wholly and exclusively for the purpose of business, what is to be borne in mind, is that, it is incurred on account of commercial expediency of the Assessee. The fact that the expenditure incurred by an Assesseee is not propelled on account of any legal obligation, or that, it benefits a third party, would not come in the way of it being allowed, as long as it is incurred due to commercial expediency. As to what is commercial expediency is to be looked at by Income Tax Authorities by placing themselves in the shoes of a prudent business person. Further, the fact that a particular expense does result in a profit for the Assessee in the immediate proximity cannot form the basis of its disallowance. In incurring an expense, a business person could have a short and a long term perspective. The fact that in the short term the expense incurred does lead to a profit, cannot rule out the possibility of accretions of profits to the Assessee in the long run. These are business decisions best left to the wisdom of those who run and manage the business. Therefore, as long an expense is incurred, wholly and exclusively for the purpose of the business carried on by the Assessee, it ought to be, ordinarily, allowed under Section 37 of the Act. (See Sassoon J. David & Co. (P) Ltd., V. CIT, (1979 (5) TMI 3 - SUPREME Court)). Thus, if, the aforesaid principles are applied, it is clear that notwithstanding the fact that the legal fee paid was more than the compensation received by the Assessee, the same, was amenable for deduction under Section 37 of the Act. Likewise, in so far as the expense incurred towards Provisional Indemnity Insurance was concerned, it could not have been disallowed, merely, by reason of the fact that Hammonds, U.K., was required to take out the insurance. - Decided in favour of assessee.
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