TMI Blog2001 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... inabove has arisen, in a nutshell, are as under: The assessee, Gujarat Agro Oil Enterprises Ltd., is a subsidiary of Gujarat Agro Industries Corporation Ltd. The assessee-company was appointed by the State of Gujarat as its agent for procurement, storage and distribution of edible oil. There was an allegation that the assessee-company, its officers and one of its directors, Shri Narbheshanker N. Panesari, had indulged in some irregularities or illegalities in the matter of purchase of groundnuts, groundnut seeds, groundnut oil, etc. In the circumstances, the State of Gujarat had appointed a one-man commission of Justice J.M. Sheth under its notification dated December 16, 1976, to make an inquiry and to ascertain whether Shri Panesari, one of the directors of the company, who was also one of the members of a committee which was functioning for the assessee-company, had exceeded his powers and whether the officers of the assessee-company had deliberately connived at the actions of Shri Panesari and whether as a result of such actions, the Government was put to loss. The Commission had also to enquire whether there was any carelessness or laxity in supervision and control on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled against the assessee-company, its officers and its director pertained to transactions which had taken place in the past, they could not have been disallowed especially in view of the fact that the advocate was paid fees during the relevant assessment year and as the assessee-company had incurred the expenditure for protecting its reputation, the said expenditure was allowable as business expenditure. Being aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the respondent filed an appeal before the Tribunal. After hearing the concerned parties, the Tribunal allowed the appeal by observing that the expenditure was not incurred for the purpose of business. According to the Tribunal, it was not necessary for the assessee-company to engage an advocate especially when the Commission had access to the entire record of the assessee-company, which was a subsidiary company of a Government corporation. The Tribunal was also of the view that the assessee-company, which was a Government company, should not have incurred expenditure to protect its employees especially when there were allegations against the officers with regard to commission of irregularites and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of protection of assets or goodwill of the company, the expenditure so incurred cannot be said to be capital expenditure. According to him, the expenditure was of revenue nature and the Revenue ought to have allowed the same. It has been submitted by the learned advocate appearing for the assessee-company that normally the Revenue should leave it to the assessee whether the assessee should incur a particular type of expenditure for the purpose of protection of its business or reputation. It is always for the businessman to use his prudence in the matter of incurring expenditure and it would not be just and proper on the part of the Revenue to decide whether the expenditure incurred was just or unjust. So as to substantiate the submissions made by him, he has relied upon the judgments delivered in the following cases: Ishwari Khetan Sugar Mills (P.) Ltd. v. CIT [1972] 86 ITR 635 (All); CIT v. H. Hirjee [1953] 23 ITR 427 (SC); CIT v. Navsari Cotton and Silk Mills Ltd. [1982] 135 ITR 546 (Guj); CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC) CIT v. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. [1975] 99 ITR 567 (Guj); Rohta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directly and substantially connected with the running of the business of the assessee and if it pertains to the business itself, it should be considered as business expenditure. In all such cases it must be shown that the expenditure was laid out wholly and exclusively for the business. It is not in dispute that the officers and the director of the assessee company, against whom allegations had been levelled, had also engaged their advocates to represent their respective cases before the Commission. As the allegations were levelled Against the officers and the director, they were very much interested to see that their cases were represented effectively and they were not held guilty of the charges levelled against them. In view of the said fact, one might think that it was not necessary for the assessee-company to engage its own advocate. The function of the assessee-company was only to render necessary assistance to the Commission. The Tribunal has observed that some of the officers could have rendered assistance to the Commission by placing on record relevant material which was required by the Commission to find out whether the so-called erring officers and the director were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers, the assessee had to engage an advocate to assist the Commission. Though it is not very much relevant, it is worth noting that ultimately it was found by the Commission that the officers and the concerned director had acted in good faith. It was thus finally found that the assessee-company was not having dishonest or unscrupulous officers and the dealings of the assessee-company were just and proper. Had there been any stricture or adverse remarks against the officers or the director of the assessee-company, in the eyes of the public at large the assessee-company would have been treated as an unscrupulous business unit of the State of Gujarat. In our opinion, looking to the facts of the case, the assessee-company was justified in engaging an advocate. The purpose of the assessee-company was not likely to be served by mere production of required record before the Commission. The Commission was also required to be properly assisted by putting several relevant facts before the Commission in its proper perspective so that upon appreciation of all the relevant facts and circumstances of the case, the Commission can come to a right conclusion. Thus, for the purpose of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or irregularity in the conduct of the business of the assessee and that the concerned persons had acted in the manner in which the assessee should have done its business. Normally, one would presume that every businessman knows his interest best and he would do his best to do his business so as to earn maximum profits and there is no reason to believe that the assessee in the instant case acted in a manner which would not befit a shrewd businessman while taking a decision regarding the way in which it should represent its case before the Commission. In reality, the expenditure was incurred for the purpose of protecting or safeguarding the goodwill of the business which is an important business asset of the assessee and, therefore, as stated hereinabove and as held in the case of CIT v. H. Hirjee [1953] 23 ITR 427 (SC), we are of the view that the expenditure incurred by the assessee for engaging an advocate is an expenditure allowable under the provisions of section 37(1) of the Act. In the circumstances, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue. The reference stands disposed of with no order as to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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