CPT V24P7-Art1 (Content).pmd - Taxmann

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Direct Tax Laws 9. Legal expenses incurred by an assessee for defending a claim for higher compensation in respect of lands acquired by the assessee must be treated as capital expenditures, since the compensation payable in regard to the acquisition of the land was clearly capital expenditure. DEDUCTIBILITY OF EXPENSES UNDER SECTION 10(2)(xv) 10. In CIT v. H. Hirjee 13 , the assessee was carrying on business as a selling agent of a company and was prosecuted under section 13 of Hoarding and Profiteering Ordinance on a charge of selling goods at prices higher than were reasonable in contravention of the legal provisions. The prosecution ended in acquittal and the assessee claimed deduction of expenses spent on defending the case from the business profits under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Hon’ble Supreme Court held that in the circumstances of the case the sum spent on defending the criminal proceeding was not an expenditure laid out or expended wholly and exclusively for the purpose of the business and it was not an allowable deduction under section 10(2)(xv). 648 The deductibility of such an expense under section 10(2)(xv) must depend on the nature and purpose of the legal proceedings in relation to the business whose profits are under computation and ‘cannot be affected by the final outcome of that proceeding’ (emphasis supplied). CONCLUSION 11. The nature, causes and characteristics of a Court or arbitration proceeding escapes all attempts at concrete categorization. These litigations are driven by an array of apparent as well as ulterior motives which aggravate the uncertainty around the issue as to whether such expense was ‘exclusively’ for the business purposes. Further, the fact as to whether the assessee is the victim or the accused/defendant in a litigation should also be given due consideration while allowing these expenditures as deductions. Thus, in this increasingly complex business environment, availability of these deductions must be scrutinized keeping in mind the broad functioning of a particular industry and on case-to-case basis. 1. Scottish Historian and Essayist, leading figure in the Victorian era. 1795-1881. 2. Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298 (Guj.). 3. CIT v. Mihir Textiles Ltd. [1976] 104 ITR 167 (Guj.). 4. Hemraj Nebhomal Sons v. CIT [2005] 278 ITR 345/146 Taxman 345 (MP). 5. CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC), J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC). 6. [1966] 60 ITR 732 (Punj. & Har.). 7. [1950] 18 ITR 557 (Bom.). 8. [1985] 155 ITR 413/[1984] 19 Taxman 485 (Bom.). 9. (supra). Hereinafter referred as Haji Aziz & Abdul Shakoor Bros. case (supra). 10. [1998] 229 ITR 534/96 Taxman 643 (SC). 11. [1984] 10 ITD 240 (Bom.)(SB) 12. [1990] 184 ITR 542/[1989] 47 Taxman 436 (Cal.). 13. [1953] 23 ITR 427 (SC). • DT - Sec. 37(1) August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 28 •••
Exclusive Owner v. Joint Owner DIRECT TAX LAWS An analysis of the decision of the Madras High Court in the case of Dr. (Smt.) P.K. Vasanthi Rangarajan v. CIT [2012] 23 taxmann.com 299 INTRODUCTION 1. Though favourable decisions are rendered by judicial authorities such as ITAT and High Courts to the delight and advantage of assessees, yet some times it becomes a risky proposition to follow such precedents when decisions have been rendered in ignorance of reported decisions of the Supreme Court in respect of vital issues; one such instance being a recent decision rendered by the Madras High Court in the case of Dr. (Smt.) P.K. Vasanthi Rangarajan v. CIT [2012] 23 taxmann.com 299. The Madras High Court, has held that if a residential property is jointly owned by two persons that would not preclude the person (as an assessee) from claiming exemption under section 54F of the Income-tax Act (the Act), as the assessee would not be hit by the proviso to section 54F of the Act - being not the exclusive owner of the residential property. The author has analyzed the definition of co-ownership/jointownership in the light of judicial pronouncements of the Supreme Court and definitions of “owner” and “ownership” as found in Black’s Law Dictionary (6th Edition) and concludes that the observation of the Madras High Court in the case of Dr. (Smt.) P.K. Vasanthi Rangarajan (supra) with regard to exclusive owner is too wide and, hence, the decision of the Madras High Court appears to be wrong requiring reconsideration by a Full Bench. August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 29 649
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