Kerala H.C : Whether, on the facts and in the circumstances of this case, the Tribunal is correct in law in allowing legal expenses amounting to Rs. 6,423.54 ?

High Court Of Kerala

Commissioner Of Agricultural Income Tax vs. Malabar Industries Co. Ltd.

Section 37(1)

Asst. Year 1970-71

V.P. Gopalan Nambiyar, C.J. & T. Chandrasekhara Menon, J.

IT Ref. No. 107 of 1977

14th December, 1978

Counsel Appeared

Government Pleader, for the Revenue : Mani J. Meenattoor, H.M. Abdul Azeez, K. Joseph Monippally & Thomas Pallickaparambil, for the Assessee


The Agrl. Tribunal, Trivandrum, has sent up its statement of the case and formulated the following question of law for our determination, namely : Whether, on the facts and in the circumstances of this case, the Tribunal is correct in law in allowing legal expenses amounting to Rs. 6,423.54 ?”

The assessee owns two estates, Skinnerpuram Estate and K.M. Estate. The assessment year with which we are concerned is 1970- 71, i.e., the accounting year which ended on February 28, 1970. The assessee admitted a loss of Rs. 2,31,993. The books of account were verified by the AO and it was found that various receipts had not been included in the accounts and some items of expenses were wrongly debited under revenue heads. The books of account were, therefore, rejected and the assessment was completed by fixing the net loss at Rs. 14,434. On appeal to the AAC, Agrl. IT and ST , that officer made some modifications in the items of expenses disallowed by the AO. A further appeal was preferred to the Tribunal. One of the items disallowed by the officer and by the AAC was a sum of Rs. 7,623.64 claimed by the assessee as legal expenses. Following its prior ruling in T.A. Nos. 129 to 134 of 1970, the Tribunal observed that legal charges are expenses incurred for the preservation and protection of an assessee’s business interests and that it was an allowable deduction under s. 5(j) of the Kerala Agrl. IT Act. The claim for deduction was, therefore, allowed. Actually the Tribunal allowed deduction only in respect of a sum of Rs. 6,423.54, i.e., it excluded a sum of Rs. 1,200 paid to the director, and granted deduction only for the rest of the expenses claimed.

A Division Bench of this Court recently had occasion to consider the scope of the deduction allowed by s. 5(j) of the Kerala Agrl. IT Act in Commr. of Agrl. IT vs. Malayalam Plantations Ltd. (1979) 8 CTR (Ker) 348:(1978) 115 ITR 624 (Ker). This Court pointed out that to confine the proviso to cover only those expenses which are directly and immediately relatable to the derivation of income will be to import limitations which are not there, either in the language or in the context, and, to hold that what is contemplated is only ” agricultural expenses ” considered as an antithesis of agricultural income. It was pointed out that s. 5(j) of the Agrl. IT Act and s. 10(2)(xv) of the Indian IT Act, 1922, represent conceptions which are allied, though distinct ; and, while there should no doubt be a connection between the incurring of the expenditure and the earning of the income, that connection should not be remote or indefinite or fanciful. Whether the connection was sufficient and adequate is a question of fact depending on the facts and circumstances of each case. In the light of the above exposition of the law, we feel that a fresh look by the Tribunal at the facts and circumstances disclosed is necessary. We would accordingly decline to answer the question of law referred for our determination and would direct the Tribunal to rehear the appeal in accordance with law and in the light of the observations made in this judgment and pass appropriate orders.

There will be no order as to costs.

Decision in favour of Answer declined.

[Citation : 169 ITR 390]

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