2008 (8) TMI 13
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....her settlement expenses paid by the assessee fall within the provision of Section 37 (1) of the Act. The learned counsel for the Revenue, Mr R D Jolly contends to the contrary ? the basis being, that since there was no obligation under the contract on the assessee to pay settlement expenses, it cannot be said that the expenses have been incurred wholly and exclusively for the purposes of business, which is a sine qua non for seeking a deduction under Section 37 (1) of the Act. 2. In order to appreciate the controversy at hand, the following facts require to be noted:- 2.1 The assessee in respect of the assessment year 2000-01 had claimed as business expenditure a sum of Rs1,30,60,957/- which it had paid to PBC as settlement expenses. The Assessing Officer while scrutinising the return of the assessee under Section 143 (3) of the Act, issued a questionnaire dated 14.12.2001 whereby, he sought to know from the assessee the nature and the details of settlement expenses debited to the profit and loss account shown in schedule K under the head "Administrative and Other Expenses". 2.2 The assessee vide a reply dated 15.01.2002 and followed by letters dated 27.11.2003 and 1....
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....ed at, as recorded in the aide-memoir, which suggested that there was a mutual understanding between the assessee and the PBC that it would continue to use the premises till July 2000. The CIT (Appeals) further noted that the assessee in order to avoid protracted litigation, based on the legal advice received, that the understanding recorded in the aide- memoir, the assessee could be sued for the specific performance or, in the alternative for damages; it settled for a lumpsum payment in furtherance of its business interest. The CIT (Appeals) significantly, went into the aspect as to whether the settlement expenses was a camouflage for a payment for purposes other than commercial reasons. Towards this end, the CIT (Appeals) called for the list of directors, of the assessee and PBC, in order to ascertain whether there were any common directors. As a matter of fact the CIT (Appeals) recorded in his order that the assessee had certified that there was no other relationship with PBC. The CIT (Appeals) on the perusal of evidence on record and material in the form of agreements of August 1997, August 1998, the aide-memoir of 1997, correspondence and other relevant material came to the co....
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....ted, above confined himself to the first condition i.e., the settlement expenses are not incurred wholly and exclusively for the purposes of business. 8.3 To determine whether an expense incurred is wholly and exclusively for the purposes of business ? according to us, can be ascertained only, if it meets the test of commercial expediency, and that too, from the point of view of the assessee who is engaged in the business and, not from the point of view of an outsider who is unaware of the needs of the business. 8.4 There are several judgments of the Supreme Court laying down principles which, need to be applied in determining whether an expenditure ought to be allowed under Section 37 (1) of the Act. These principles have emerged over the years by virtue of judicial interpretation giving meaning to the words "wholly and exclusively for purpose of business" appearing in Section 37 (1) of the Act. The principles deducible even though not exhaustive are as follows:- i) the expression "wholly and exclusively for the purpose of business" is of a wide import as a matter of fact, is wider than the expression for the purpose of earning profit; ii) the expense is allowable ....
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....num, in March 1999, the assessee acquired a new premises, and evidently, entered into a contract with respect to the same with M/s Great Eastern Shipping Company Private Limited. The charges payable for the new premises were Rs 20,56,416/- as against Rs 30,87,827/- per month with respect to the use of the premises of PBC. 8.10 By a communication dated 22.03.1999, the assessee informed the PBC of its intention to dis-continue the use of the premises with effect from 31.08.1999, and consequently, demanded return of its interest free security amounting to Rs 7,46,07,848/-. 8.11 This communiqué triggered correspondence between the assessee and PBC on the specific issue of early termination of the understanding which required continued use of the premises till July, 2000. 8.12 In this background, the assessee sought legal advice. The assessee was advised that there was a possibility of litigation ensuing, in respect of, its early exit from the premises. It was advised that it could be sued for damages for breach of contract and / or for specific performance, keeping in mind the contents of the aide-memoir based ....