TMI Blog1966 (2) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the income-tax authorities and also by the Tribunal. The assessee is a public limited company. It has large shareholdings of several other companies and it holds controlling interest in some of them. Its business consists of investing its moneys in other companies and deriving income from dividends from those subsidiary companies and distributing the same amongst the shareholders. One of the shareholders of the assessee-company was Ratanchand Khimchand Motishaw. On the 14th of April, 1952, he wrote a letter to the managing agents of the assessee-company intimating to them his intention of raising certain queries with regard to some of the subsidiary companies of the assessee-company at the time of the annual general body meeting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff only a declaration declaring that the ruling given by the second defendant, i.e., the president, at the annual general meeting was illegal. As to the other reliefs, the court took the view that in the circumstances of the case they could not be given to the plaintiff. The court, however, gave the plaintiff the costs of the suit. The defendants including the assessee-company appealed against the decree of the trial court, but the appeal failed and was dismissed with costs. The decision in appeal was given on the 20th of August, 1957. The total costs of the litigation to the assessee-company was a sum of ₹ 18,050, which the assessee-company claimed as a deduction in the assessment year 1958-59, for which the corresponding accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An assessee could be said to have incurred the expenditure in his character as a trader if the litigation was necessary to be carried on by the assessee or defended by it to protect its trade or business or to avert a danger or threat to its carrying on of its business. If the present litigation was purely in relation to a domestic quarrel between the shareholders and the board of directors as held by the Tribunal, it could readily be said that the company would not be justified in claiming the expense incurred by it in the said litigation as expense of its business. We find, however, that the suit, which Motishaw had filed against the assessee- company and the board of directors, did not confine itself merely to the settlement of the qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, therefore, so far as the expenditure incurred by the assessee- company in defending the suit itself was concerned, it could be said that the said expense was wholly and exclusively laid out for the purpose of its business. We do not, however, think that the same could be said about the expenses of the appeal. In the suit the only relief, besides the relief of costs, which was given to the plaintiff, related to the legality of the ruling of the president. No other relief was given which affected the assessee- company adversely so far as its carrying on its business was concerned. The appeal, therefore, which was filed against the decree of the trial court, was only with regard to the correctness or legality of the ruling given by the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the proper conduct of its business and this is an expense which could be regarded as incurred for facilitating such smooth course in regard to the conduct of the business of the assessee-company and, therefore, permissible as an expenditure incurred in the course of its business. We are not impressed by this submission of Mr. Mehta. That an expense may in some indirect way be conducive to the benefit of the business or to the better management of the business would not make it an expenditure wholly and exclusively laid out for the purpose of its business. What must be considered is the purpose for and the object of the expense at the time when it is incurred and whether the expense that has been incurred has any relation to the carry ..... X X X X Extracts X X X X X X X X Extracts X X X X
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