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TMI Blog1971 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... vided family had been taken over by the assessee-firm as standing in the books of the Hindu undivided family as a running concern. According to the Tribunal "the business was taken over by the assessee-firm as a running concern from the Hindu undivided family." This reference relates to the assessment year 1958-59. We will deal with the first question first. The assessee-firm claimed legal expenses and professional fees aggregating Rs. 5,556 as follows: Rs. "(i) Expenses in connection with the repre- sentation to the Central Board of Revenue and other appeal expenses paid to M/s. P. R. Mehta and Co. 2,483 (ii) Expenses in connection with the settle- ment of old assessments with the Directorate of Inspection (Investigation) paid to M/s. Khanna and Annadhanam 2,758 (iii) Expenses in connection with the above to Shri K. N. Rajagopal Shastri 315 ---------- 5,556" ---------- The, Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal disallowed the deduction which was claimed under section 10(2)(xv) of the Act as being expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee. On the erroneous ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y steps for reducing its liability to tax which resulted in more funds being left for the purpose of carrying on the business there is always the possibility of higher profits. If a trader considers that the revenue seeks to take too large a share and to leave him with too little, the expenditure which the trader incurs in endeavouring to correct the mistake is a disbursement laid out for the purpose of his trade. " The Supreme Court further observed that, however wrong-headed, ill-advised, unduly optimistic or over-confident in his convictions, the assessee might appear in the light of the ultimate decision, expenditure in prosecuting a civil proceeding cannot be denied as a permissible deduction if it is reasonably and honestly incurred to promote the interest of the business. The proposition that emerges from the decision of the Supreme Court is that if the assessee incurs expenditure reasonably and honestly to promote the interest of the business and takes any steps for reducing its liability or in endeavouring to correct a mistake, such expenditure must be held to be laid out for the purpose of his trade and, therefore, admissible as a deduction under section 10(2)(xv) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The amount of Rs. 24,252 was computed by the Income-tax Officer as follows: Rs. 1. Sale price of truck No. USR 979 5,500 2. Sale price of truck No. USR 980 6,500 3. Sale price of truck No. USR 1746 12,252 ------------ Total 24,252 ------------ The written down value at the trucks at items Nos. 1 and 2 above was exhausted in the assessment year 1952-53, while the written down value of the truck at item No. 3 was exhausted in the assessment year 1956-57 when they belonged to the Hindu undivided family and, therefore, the whole of the sale price was taken as profit under section 10(2)(vii) of the Act. The Tribunal held that "since the business was taken over by the assessee-firm as a running concern from the Hindu undivided family, the written down value in the hands of the assessee-firm is to be as that in the hands of the Hindu undivided family. The surplus realised on the sale of these assets representing the sale price over the written down value was, therefore, rightly subjected to tax in the assessee's hands." It may be restated that the written down value of all the three trucks had been exhausted while they were still the property of the Hindu undivided family and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second proviso as the written down value in its books was zero. It cannot also be disputed that if the Hindu undivided family had sold the trucks to a stranger, the "original cost" to the stranger would be the price for which he purchased the trucks and on which he, in his turn, would be entitled to claim depreciation. The contention of the assessee is that since it took over the business of the Hindu undivided family as a running concern, the original cost of the trucks to it would be zero and since the written down value of the trucks is also zero, the excess cannot be brought to tax as only such excess can be brought to tax as does not exceed the difference between the original cost and the written down value. In other words, the original cost being zero and the written down value being zero, therefore, there is no question of the difference of the excess between the original cost and the written down value being brought to tax as profits of the previous year in which the sales took place. It is, therefore, necessary to see whether the original cost to the assessee-firm in this case is zero as contended by it or it is the original cost as entered in the books of the Hindu undiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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