INCOME-TAX APPELLATE TRIBUNAL Vs. CENTRAL SPINNING, WEAVING AND MANUFACTURING COMPANY LIMITED, EMPRESS MILLS

JUDGEMENT

(1.) THIS case arises on a reference made by the Income-tax Appellate Tribunal (Bombay Bench) under Section 66(1), Income-tax (Amendment) Act, 1922. The question submitted for our opinion is as follows: Whether on the facts of the case the legal expense of Rs. 2577 is a revenue expenditure and a proper deduction in computing the taxable income of the assessee company from business?

(2.) IN the year of account 1938-39 the assessee company incurred an expense of Rs. 2577 in connexion with a suit which they had brought against Binod Mills Ltd., Ujjain, to restrain them from using a trade-mark to which the assessee had acquired exclusive right by long user. The assessee company claimed deduction of that amount under Section 10(2)(ix) of the Act of 1922. Their claim was rejected by the Appellate Assistant Commissioner holding that it was capital expenditure being a non-recurring outlay for retaining a valuable asset of the company. That view was upheld by the Income-tax Appellate Tribunal on the ground that the trade-mark was a capital asset of the assessee company and that consequently legal expense incurred for protecting it against infringement was capital expenditure. The Tribunal rested their decision on Kangra Valley State Co., Ltd. v. Commissioner of Income-tax, Punjab A.I.R. 1936 Lah. 350 in which the Lahore High Court held that a non-recurring outlay required to retain a capital asset is capital expenditure and it declined to follow Southern v. Borax Consolidated Ltd. , which is an English case in which a Single Judge of the King's Bench Division held that legal expense incurred by a company for maintenance of a capital asset is properly attributable to a revenue for the reason that such expense does not create any new asset. It is because of the conflict between the two cases and the absence of any authoritative decision by any other High Court in India that the Appellate Tribunal thought it necessary to submit the aforesaid question for the opinion of this Court.

(3.) AS a consequence of the amendment made in 1939 its present form is as under: (xii) Any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession, or vocation.