COMMISSIONER OF INCOME TAX Vs. LIFE INSURANCE CORPORATION OF INDIA UNIT: HINDUSTHAN CO OPERATIVE SOCIETY LTD

JUDGEMENT

(1.) The short point to be decided in this reference under Section 66(1) of the Income-tax Act, 1922, is whether the litigation expenses amounting to Rs. 3,98,631 should be allowable as an expenditure under Section 10(2)(xv) of the Act. The relevant facts underlying this reference as set out in the statement of case are briefly stated as follows:

(2.) The assesses held several shares of the New Tea Co. Ltd. (hereinafter referred to as the Tea Co.), the face value of which at the meterial time amounted to Rs. 7,480, One Sudhangsu Mohan Choudhury, a shareholder of the Tea Co. instituted a suit against the respondent company and some other defendants in the Calcutta High Court alleging that the share holding of the assessee in the Tea Co. being in excess of 10% of the Subscribed share capital of the Tea Co. contravened the provision of Section 27A(4) of the Insurance Act 1938. The plaintiff in the suit prayed, inter alia, for a perpetual injunction restraining the defendants from exercising any votes or any rights in respect of the shares or any right in respect of the shares held by the assessee in the Tea Co. in execess of 10 per cent of the subscribed share capital of the Tea Co. Eventually the suit was dismissed and the said amount was claimed by the assessee as an expenditure incurred by it (or allowance under Section 10(2) (xv). The Income-tux Officer disallowed the claim on the ground that the suit having been instituted for the purpose of restraining the controlling or voting power by the assessee company in the Tea Co., the costs of the suit were capital expenditure. The assessee's appeal to the Appellate Assistant Commissioner was unsuccessful but, on further appeal to the Appellate Tribunal, the Tribunal came to the conclusion that the litigation expenses were allowable under Section 10(2)(xv) and allowed the appeal. On these facts the following question of law has been referred to us:

(3.) Mr. Gouri Mitter, learned counsel for the Commissioner of Income-tax has referred us to prayer (b) of the plaint in the High Court suit which reads as follows: