COMMISSIONER OF INCOME TAX Vs. DEVARAJ S

JUDGEMENT

(1.) THIS reference raises the question whether litigation expenses in defending a suit, in which the status of the assessee was disputed, constituted an expenditure deductible under Section 12(2) of the Income-tax Act, 1922. We are concerned with the assessment year 1961-62. The assessee is the adopted son of one Janaki, the wife of a certain Srinivasalu Naidu, who died on November 16, 1937, leaving his widow and a minor son by name Natarajan, THIS boy also died on May 30, 1946. Srinivasalu Naidu's father, one Narayanaswami Naidu, and Janaki, each adopted a son to himself or herself. The adoption by the widow was on June 10, 1946. Later, Narayanaswami Naidu divided the family properties between himself and his adopted son and the assessee by means of two unregistered documents. At the division the assessee got for his share several shares in joint stock companies. O. S. No. 185 of 1952 was instituted by Janaki disputing the adoption as well as the propriety of the division. The assessee was one of the defendants in the suit, which was dismissed. There was an appeal from the decree, in which also the assessee was successful. For the assessment year 1959-60, a sum of Rs. 2,700 was claimed by the assessee as deduction from his dividend income, charged to tax under Section 12. THIS was disallowed by the revenue. The Tribunal concurred with it, its view being that the expenditure had been incurred to retain the title to shares and not to get over any impediment, that stood in the way of the assessee's collecting the income thereform, and that the purpose of the suit was to undermine the assessee's very right to the shares, to complete which he had to defend himself. For the next year, the assessee sought to deduct a sum of Rs. 2,500, the expenditure incurred in the appeal, and this time, again, he sought deduction from the dividend received for the year. As before, the revenue rejected the claim. But, this time the Tribunal took a contrary view and held that the assessee was entitled to the deduction. In its opinion the expenditure, at least in part, was incurred to protect the investments.

(2.) THE reference comes before us, at the instance of the Commissioner of Income-tax, of the following question :

(3.) IN that case the estate duty paid by a company was claimed as a permissible deduction under Section 10(2)(xv), which the Supreme Court disallowed.