TMI Blog1985 (10) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciate the question referred to us, it is necessary to notice, in the first instance, the facts as found by the Tribunal. Messrs. United Breweries Limited, 32, Grant Road, Bangalore, a public limited company carrying on business in the manufacture and sale of beer is an assessee under the Income-tax Act, 1961 (" Act "). For the assessment year 1971-72 relevant to the accounting year ending on March 31, 1971, the assessee in its return claimed an allowance of Rs. 11,500, being the legal expenses incurred in connection with a case filed by it against Ruttonjee Co. Ltd. The Income-tax Officer, by his order of assessment, annexure " A ", made on September 21, 1972, disallowed the said claim following the reasons given for disallowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue, submitted that legal expenses are not incurred wholly and exclusively for the purpose of safeguarding the investments or earning dividends or for the purpose of the business of the assessee and, therefore, not allowable. The claim of the assessee was disallowed for the assessment year in question for the very reason its claim was disallowed for the previous years by the Tribunal in its order made on February 11, 1974, in Income-tax Appeals Nos. 706, 707 and 708/Bang/ 1971-72 as no fresh grounds were urged before the Tribunal (annexure C). The Tribunal has held that the proceedings taken by the assessee before the Calcutta High Court were for calling for a general body meeting under section 186 of the Companies Act, 1956, and had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding payment of royalties to the United Breweries Ltd. These disputes and differences were not settled through dialogues or negotiations and the breach gradually appeared to be final. The annual general meeting that was to be held on September 28, 1965, failed due to want of quorum. It is not alleged, however, that any one deliberately kept himself away from the meeting with a view to create any difficulties. Thereafter, the two groups wanted to have their annual general meeting in their own way and the present position is that the Mallya group is contending that the Bhesanias have ceased to be directors and the Bhesania group says that A. K. Thakur and Sukumar Roy are not duly elected directors. Sookamal Kanti Ghose has, it is alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is to achieve this object the petitioner was anxious for a change in the board of directors. The object of filing the application, it is, therefore, clear, was to eliminate one set of directors and take over control of the management of the company. The object of filing this application was not for calling a meeting for declaring dividend. Section 37(1) of the Act extends the allowance of items of business expenditure not covered by the preceding sections and covers cases of business expenditure only and the expenditure should be incurred for the purpose of or in connection with the assessee's own business profits which are underassessment (CIT v. United Breweries [1973] 89 ITR 17). In J. K. Commercial Corporation's case [1969] 72 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the rental income of the sum of Rs. 17,974 and Rs. 31 on account of expenses incurred for the suit. On appeal, the Appellate Assistant Commissioner upheld the assessment. On further appeal the Tribunal held that the expenditure was incurred wholly and exclusively for increasing the rental income of the assessee and was an allowable deduction. On a reference at the instance of the Revenue, the Calcutta High Court held that the ejectment suit had ultimately led to substantial increase of the rental income of the assessee and on facts found by the Tribunal, the conclusion that expenses were allowable as deduction under section 57(iii) of the Act, cannot be said to be perverse. In this case, the legal expenses were incurred by the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not for calling a meeting for declaring dividend. One of the complaints by the assessee was that Ruttonjee Co. Ltd. was refusing to pay royalty. According to Ruttonjee Co. Ltd., payment of royalty as claimed would not be in the interest of the company as it would have dwindled the income and the company would not be able to pay its debts or declare dividends. It is not even the case of the assessee that the application before the Calcutta High Court was to call for a meeting to declare dividend. It is only expenditure laid out or expended wholly and exclusively for the purpose of earning dividend that is allowable as deduction. The legal expenditure incurred by the assessee is not an expenditure incurred for earning dividend and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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