Madras H.C : The licence fee paid to M/s. RPG Enterprises Ltd. can be deducted as a business expenditure

High Court Of Madras

CIT vs. Spencers And Co. Ltd.

Assessment Year : 2001-02

Section : 37(1)

Elipe Dharma Rao And M. Venugopal, JJ.

T.C. (A.) No. 1783 Of 2008

July 9, 2013

JUDGMENT

Elipe Dharma Rao, J. – This appeal is filed against the order dated March 28, 2008, passed by the Income-tax Appellate Tribunal, Madras “C” Bench in I. T. A. No. 580/Mds/2007.

2. The brief facts leading to the filing of this appeal are as follows :

The assessee is engaged in the business of property development, viz., property leasing, retail trade, etc. The assessee-company filed its return of income for the assessment year 2001-02 on October 31, 2001, admitting a total income of Rs. 4,37,78,130. The case was taken up for scrutiny on September 20, 2002. Notice under section 143(2) of the Income-tax Act, 1961, was issued on October 25, 2002. Subsequently, the case was selected for assessment by the Additional Commissioner of Income-tax and notice under section 143(2) of the Act was issued to the assessee on November 13, 2002. After hearing the representative of the assessee-company, the Assessing Officer completed the assessment on March 30, 2004, by disallowing a sum of Rs. 1,37,21,673 paid by the assessee towards licence fee to M/s. RPG Enterprises Ltd. and also disallowed legal expenses, retainer fee and consultancy charges on the ground that the said expenditure pertained to earning of rental income assessed under the head “House property” and, therefore, not permissible in computing the business income. As against the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), who, vide order dated November 27, 2006, allowed the claim regarding payment of licence fee to M/s. RPG Enterprises Ltd., following the assessee’s own case for the assessment year 2003-04 and with regard to the disallowance of legal charges, following the decision of the Income-tax Appellate Tribunal, Calcutta Bench in I. T. A. Nos. 1002/C/89 and 1167/C/91, allowed the case in favour of the assessee. Aggrieved by the said order, the Revenue filed an appeal in I. T. A. No. 580/Mds/2007 before the Income-tax Appellate Tribunal and the Tribunal dismissed the said appeal, vide order dated March 28, 2008. Challenging the same, the Revenue has come forward to prefer this appeal.

3. At the time of admitting this appeal, the following substantial questions of law were framed by this court :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the licence fee paid to M/s. RPG Enterprises Ltd. can be deducted as a business expenditure ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred towards legal expenses, retainer fee and consultancy charges is to be allowed as a deduction from business income, when such expenditure was incurred in connection with lease of property, income from which is assessed under the head ‘Income from house property’ ?

3. Whether, on the facts and in the circumstances of the case, legal expenses incurred in connection with obtaining a security deposit from a client can be treated as business expenditure merely because such deposit amount was utilised for business purposes ?”

Substantial question of law No. 1

4. Learned standing counsel for the appellant-Department submitted that the respondent-assessee claimed in their returns for the relevant assessment years that they have paid licence fee to M/s. RPG Enterprises Ltd. and claimed the amount so paid as licence fee as business expenditure. The assessing-companies, however, did not produce any material evidence before the authorities below in support of their claim. Learned standing counsel submitted that the Commissioner of Income-tax (Appeals) as well as the Tribunal erred in holding that the licence fee paid to M/s. RPG Enterprises Ltd. was an expenditure incurred by the assessee wholly and exclusively for the purpose of their business and, therefore, such expenditure was allowable as business expenditure. Learned counsel further submitted that the Commissioner of Income-tax (Appeals) as well as the Tribunal grievously erred in overlooking the clear finding of fact recorded by the assessing authority that no evidence was brought on record by the assessee as to what costs were incurred by M/s. RPG Enterprises Ltd., how the assessee’s share has been arrived at and what specific services were availed of by the assessee as consideration for the licence fee paid and that the assessee-companies failed to discharge their onus in proving that the licence fee paid was wholly and exclusively for the purpose of their business and that the authorities below committed a gross error in overlooking these findings of the assessing authority. Learned standing counsel for the Revenue also submitted that the payment of licence fee to M/s. RPG Enterprises Ltd. was a mere reimbursement of expenditure incurred by M/s. RPG Enterprises Ltd. for their own activities and not for the purpose of the assessee’s business activities.

5. Learned standing counsel for the Revenue relied on a few decisions to substantiate his arguments. The cases cited are as follows :

(a) CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC) wherein the honourable Supreme Court held as follows (page 196) :

“Now, it is clear that this being a claim for exemption of an amount, contended to be an expenditure falling under section 10(2)(xv), the burden of proving the necessary facts in that connection was on the assessee, it being common ground that the commission was due and had become payable and was, therefore, the business income of the assessee-company liable to be taxed in the assessment year. The jurisdiction of the High Court in the matter of income-tax references is an advisory jurisdiction and under the Act the decision of the Tribunal on fats is final, unless it can be successfully assailed on the ground that there was no evidence for the conclusions on facts recorded by the Tribunal.”

(b) Amritlal and Co. (P.) Ltd. v. CIT [1977] 108 ITR 719 (Bom), wherein it was held as follows (page 736) :

“In the first place, the payment of commission is disproportionately high as compared to their salaries and, secondly, no trade practice had been pointed out by the assessee-company in support of the commission paid. In other words, the expenditure incurred cannot be said to have satisfied the requirements of the proviso to clause (x) of sub-section (2) of section 10. In this view of the matter, it is clear that the assessee-company could not be allowed the deduction claimed in respect of these payments made to Shri Kamat and Shri Shah.”

(c) In Andrew Yule and Co. Ltd. v. CIT [1963] 49 ITR 57 (Cal), the issue involved was as to whether the payment made to the widow of the chairman of the board of directors of the assessee-company by way of compensation in view of circumstances attending on death of the chairman was admissible as an expense under the Act. The court took the view that the payment of compensation to the widow of the deceased on the facts of the case was an expense laid out wholly for purposes of the assessee’s business. Even though it was contended that the company certainly behaved very generously towards the widow of person who had served it faithfully and efficiently for many years and the fact that the deceased had met his death in course of travel for purposes of the company’s business. Thus, reasonable compensation paid to his widow for loss of his life might be justifiable expense. Therefore, the payment though generous could not be upheld as deductible expense under section 10(2)(xv) of the Act. Further, the court took into the fact that the company’s balance-sheet and the profit and loss account for the year was in conformity with the practice regularly followed by the assessee and thus would entitled it to include the same in the year of account.

(d) In Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 (SC), it has been held (pages 641 and 645) :

“The Tribunal held that before the termination of the managing agency agreement the affairs of the company were administered by Lala Ram Rattan Gupta and Lala Ram Prasad Gupta, that even after the termination of the managing agency Lala Ram Rattan Gupta and Lala Ram Prasad Gupta continued to administrator the affairs of the company, and that on the materials on record it was not proved that the managing agents were performing any service to the company. The Tribunal, therefore, held that the payment of the managing agency commission to the managing agents was not expenditure wholly and exclusively incurred for the purpose of the company’s business. The Tribunal also observed that the disputed between the two groups could in no way harm or cause hindrance to the ‘normal day-to-day working of the company . . .

After a detailed consideration the High Court held that the expenditure in question was not made wholly and exclusively for the purpose of the company’s business, and was by way of distribution of profits, and being wholly gratuitous or ‘for some improper of oblique purpose outside the course of business management’, it could not be treated as a permissible deduction.”

(e) In Pondicherry Railway Co. Ltd. v. CIT AIR 1931 PC 165, it has been held as follows :

“Question (d) relates to the quantum of the assessment. The statute permits the assessee in computing the profits or gains of any business carried on by him to deduct : ‘any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains’.”

6. On the other hand, learned senior counsel for the respondent-assessee submitted that the respondent-assessee belong to the RPG group of companies and that in case of large group of companies like that of the respondent-assessee, the business overheads is shared by establishing a common organisational service platform to provide common services to all the group companies. It is an established practice in many large business groups to establish a common administrative or service platform to cater the need of the companies in the group. Learned senior counsel cited the examples of M/s. Duncon Industries Ltd. under the Duncan group of companies and M/s. Eveready Industries India Ltd. under the Williamson Magor group of companies paying licence fee for availing of the benefits of the business organisation platform set up by Duncan Co. Ltd. and Williamson Magor and Co. Ltd and argued that such common organisation service platform catering the need of the group companies not only results in saving of business overheads but also gives benefit of synergies and result in better, efficient and centralised control over the group companies.

7. Learned senior counsel submitted that in the present case, M/s. RPG Enterprises Ltd. is a group resource company providing centralised resources to all the group companies. The respondent-assessee in terms of the agreement entered into with M/s. RPG Enterprises Ltd. availed of valuable services from M/s. RPG Enterprises Ltd. and also made use of RPG logo as part of their business operations for their business prospects. The respondent-companies by taking service benefits from M/s. RPG Enterprises Ltd. availed of valuable benefit for their business operations. The payment of licence fee to M/s. RPG Enterprise Ltd. by the respondent assessee was towards their share of actual expenses incurred by M/s. RPG Enterprises Ltd. Learned senior counsel submitted that the assessee-companies, therefore, gained through this cost sharing arrangement with M/s. RPG Enterprises Ltd. and in the absence of such cost sharing arrangement, the assessee would have incurred higher financial costs. The payment of licence fee paid to M/s. RPG Enterprises Ltd. was undoubtedly, as has been held by the Commissioner of Income-tax (Appeals) and the Tribunal, a business expenditure wholly and exclusively for the purpose of the respondents business.

8. Learned senior counsel for the respondent-assessee, referring to the agreement dated May 3, 1999, entered into with M/s. RPG Enterprises Ltd. submitted that in terms of the said agreement, the licensee (respondent) has to reimburse the licensor (M/s. RPG Enterprises Ltd.) their share of costs incurred for availing of the benefits of the expertise developed by M/s. RPG Enterprises Ltd. It was on the basis of the said agreement, for availing of the benefit of business expertise from M/s. RPG Enterprises Ltd., the respondent-companies had paid the licence fee on the basis of the debit notes raised by RPG Enterprises.

9. Learned senior counsel relied on certain decisions to buttress his arguments. The decisions cited on behalf of the respondent-assessee are :

(a) Britannia Industries Ltd. v. State of Tamil Nadu [2012] 48 VST 241 (Mad). It was held in this decision as follows (page 244) :

“Given the fact herein that edible oil sold to the assessee had enjoyed the exemption under the Government order by reason of the sellers’ turnover being below Rs. 300 crores limit and that the goods sold to the assessee was consumed in the manufacture of biscuits thus the edible oil is no longer available for further tax treatment as per proviso to section 3(2), rightly the assessment was brought to tax under section 7A of the Act. Given the object of introduction of section 7A, to plug the leakage and to prevent evasion of tax, even though there is no ‘evasion of tax’ as such in the sense in which ‘evasion’ is understood, applying the decision reported in State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC), we reject the submission of the assessee that the exemption granted is a circumstance which ought to have been taken note of as excluding the charge under section 7A of the Act.”

(b) In Municipal Corpn. of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688, it was held as under :

“So far as the proposition of law is concerned, it is well-settled and needs no further discussion. In taxation matters, the strict rule of res judicata as envisaged by section 11 of the Code of Civil Procedure, 1908, has no application. As a general rule, each year’s assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/taxing authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years.”

(c) In CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 47/116 Taxman 795 (Cal), it was held as follows (page 53) :

“Hence, we hold that the prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property.

In view of the facts and law discussed above we hold that the income derived from the said property is an income from property and should be assessed as such.”

(d) Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC), wherein it has been held (page 755) :

“In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether a provision should be construed literally or liberally, nor whether the transaction is not unreal, and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it.”

Having heard the learned standing counsel for the Revenue and the learned counsel for the respondent-assessee, we have also carefully gone through the material available on record and the order passed by the authorities below and that of the Tribunal.

10. The assessing authority held that the respondent-assessee and M/s. RPG Enterprises Ltd. are two different legal entities under the Income-tax Act and, therefore, the sharing of expenditure of some other entity by the assessee was not an allowable expenditure. The assessing authority was of the view that it may be true and not disputed that M/s. RPG Enterprises Ltd. had incurred this expenditure but the business purpose of the assessee reimbursing the said expenses to M/s. RPG Enterprises Ltd. was not established and that the payment of licence fee was more in the nature of an application of income by the assessee. The Assessing Officer disallowed the claim of the assessee towards the licence fee paid to M/s. RPG Enterprises Ltd. and added the said amounts to their income. The appellate authority, the Commissioner of Income-tax (Appeals), relying on the order passed by the Kolkatta Income-tax Appellate Tribunal in the case of Dy. CIT v. Philips Carbon Black Ltd. [2011] 133 ITD 189/16 taxmann.com 64 was of the view that by taking the benefit of the common business establishment, the assessee could access the expert advice in various business fields and, therefore, the licence fee paid to M/s. RPG Enterprises Ltd. was a business expenditure incurred wholly and exclusively for the purpose of business. The appellate authority found that the facts and circumstances of the assessee’s case were identical to the facts of Philips Carbon Black Ltd. (supra) and, therefore, following the order passed by the Kolkatta Income-tax Appellate Tribunal set aside the order of the assessing authority and deleted the disallowance of licence fee paid to M/s. RPG Enterprise Ltd. In the appeal before the Tribunal by the Revenue, the Tribunal, following the decision of the co-ordinate Bench of the Madras Income-tax Appellate Tribunal in the case of RPG Transmission Ltd. [I.T. Appeal Nos. 751 to 753/Mds/2005], held that since the material facts and circumstances governing payments made by the assessee towards licence fee were the same as in the case of RPG Transmission Ltd. (supra) and confirmed the order of the Commissioner of Income-tax (Appeals) in deleting the disallowance of licence fees paid to RPG Enterprises Ltd. (supra) and rejected the appeal filed by the Revenue. It, however, appears that in the appeal before the Tribunal neither the Revenue nor the assessee has brought to the notice of the Tribunal that the earlier order passed by the Tribunal in the case of RPG Transmission Ltd. (supra) was the subject matter of further appeal before this court.

11. Before us, reiterating the findings of the Tribunal in the order impugned in this appeal, learned counsel for the respondent-assessee drew our attention to the decision of the Calcutta High Court in Philips Carbon Black Ltd. (supra) case, where the Calcutta High Court had dismissed the appeal filed by the Revenue on the licence fee holding that no substantial question of law was involved. It is pertinent here to note that the said decision was not rendered on the merits of such expenditure which was allowed as business expenditure but the High Court was of the view that no substantial question of law was involved. In such circumstances, the said decision of the Calcutta High Court may not be of any assistance to the respondent-assessee to substantiate their claim. It was also pointed out on behalf of the respondent-assessee that the Bombay Tribunal in the case of RPG Life Science has allowed the deductions towards the licence fee paid to RPG Enterprises Ltd. and that the said decision of the Bombay Tribunal was confirmed by the Bombay High Court. We note from the order of the Bombay High Court that the appeals were dismissed at the stage of admission as the High Court was of the view that no substantial question of law was involved for a decision by the High Court.

12. We have carefully perused the order passed by the Bombay Tribunal, which was taken up in appeal before the Bombay High Court. We find that the findings recorded by the Bombay Tribunal were essentially based on the decision of the Madras Bench of the Tribunal rendered in RPG Transmission’s case (supra) which order is impugned before this court. We, therefore, cannot solely rely on the decisions cited by the learned counsel for the respondent-assessee as at the time of rendering the abovesaid decision, the present appeal was already admitted and, therefore, this court could very well examine the correctness or otherwise of the Tribunal’s order.

13. We have carefully examined the order of the Tribunal, which is impugned before us in this appeal. We find that while concurring with the Commissioner of Income-tax (Appeals) on the issue of licence fee paid, the Tribunal had set aside the findings of the assessing authority. The essential fact which emerged from the material on record was whether the expenditure incurred by the assessee towards payment of licence fee to M/s. RPG Enterprises Ltd. was justifiable on the facts for allowance. We note from the order of the Commissioner of Income-tax (Appeals) as well as the order of the Tribunal that the respondent-assessee by availing of service benefits from the group resource company, viz., M/s. RPG Enterprises Ltd. availed of valuable benefit, for their business operations and that the payment of licence fee to M/s. RPG Enterprise Ltd. by the respondent-assessee was towards their share of actual expenses incurred by M/s. RPG Enterprises Ltd. The Commissioner of Income-tax (Appeals) and the Tribunal in their orders clearly pointed out that the expenditure incurred by the respondent-assessee towards the licence fee payment to M/s. RPG Enterprises Ltd. were relatable to the business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified. We do not see any reason to interfere with the concurrent finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Tribunal. The orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal contained cogent reasons for arriving at such findings.

14. The issue regarding licence fee paid is squarely covered by the two decisions of the High Courts of Bombay and Calcutta (referred to above) in which the question of law raised by the Revenue was rejected in the assessee’s group company case. It is settled law in so far as the scope, power and ambit of the High Court in exercise of jurisdiction under section 260A of the Income-tax Act and the sum and substance of the decisions relied upon by the learned counsel on either side is that once the Tribunal and the appellate authority has decided the case with reference to the explanation offered by the assessee in detail then the court cannot interfere on the case. Further, if the findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances then that will not involve any substantive question of law. In our judgment in the tax appeals in T. C. (A.) Nos. 310 to 312 of 2007 and T. C. (A.) Nos. 1388 to 1390 of 2007 (CIT v. RPG Transmissions Ltd. [2013] 359 ITR 673 (Mad) (infra), which was heard along with this appeal and disposed of today, we have held that a transaction or an arrangement which is perfectly permissible and which may have the effect of reduction of tax burden need not be seen with tainted disfavour. In this appeal also we do not find any reason on the facts and circumstances of the matter to take a different view.

15. Following the said decisions, we answer the substantial question of law No. 1 raised in this appeal in favour of the assessee and against the Revenue.

Substantial questions of law No. 2 and 3

16. The respondent-assessee claimed Rs. 49,98,616 as legal charges out of which Rs. 41,54,551 was disallowed by the assessing authority. The assessing authority had also disallowed the assessee’s claim of Rs. 1,21,545 towards retainer fee and Rs. 18,500 towards consultancy charges. The appellate authority Commissioner of Income-tax (Appeals) set aside the assessment and deleted the disallowance of the above amounts. The Tribunal upheld the order of the appellate authority deleting the disallowance of the said amounts.

17. Learned standing counsel for the Revenue reiterating the submissions made before the appellate authority as well as the Tribunal wanted us to sustain the order of the assessing authority and in support thereof, he relied on the decision of the Supreme Court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC), wherein the honourable Supreme Court has held as follows (page 52) :

“In Commercial Properties Ltd. v. CIT [1928] ILR 55 Cal 1057 income derived from rents by a company whose sole object was to acquire lands, build houses and let them to tenants and whose sole business was management and collection of rents from the said properties, was held assessable under section 9 and not under section 10 of the Income-tax Act. It was observed in that cases that, merely because the owner property, was a company incorporated with object of owning property, the incidence of income derived from the property owned could not be regarded as altered ; the income came more directly and specifically under the head ‘Property’ than income from business.

The income received by the appellant from shops is indisputable income from property ; so is the income from stalls from occupants. The character of the income is not altered merely because some stalls remain occupied by the same occupants and the remaining stalls are occupied by a shifting class of occupants. The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment that the occupation which is the source of the income is temporary.”

18. Learned counsel for the Revenue also relied on the decision in CIT v. Ideal Garden Complex (P.) Ltd. [2012] 340 ITR 609/21 taxmann.com 55 (Mad.). The question which came up for consideration in this case was whether income from letting out of property was to be assessed as “business income” or “income from house property”, and ultimately, it has been held in the said judgment as follows (page 622) :

“It is seen from the order of assessment that the assessee took on lease the land and building owned by Mr. Sethu, director of the company. The assessee constructed the commercial complex and received rental income therefrom. The Assessing Officer pointed out that it was the only activity carried out during the year 1991-92 ; there were no other activity thereafter carried on ever since 1991-92. Under such circumstances, the Assessing Officer concluded that there was no such thing as exploitation of business assets. There are no materials placed before us by the assessee to contradict the abovesaid facts . . . .

We have already referred to the decision of the apex court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC), which was also considered in the case of (1) Universal Plast Ltd., (2) Guntur Merchants Cotton Press Co. Ltd. v. CIT [1999] 237 ITR 454 (SC). The question involved therein was as to whether income from letting of the property was to be treated as ‘business income’ or not. As has been pointed out in the decision in the case of Universal Plast Ltd., Guntur Merchants Cotton Press Co. Ltd. v. CIT [1999] 237 ITR 454 (SC), when the facts noted in the case before us clearly point out that the transaction was only by way of exploitation of the property by the assessee and not by way of exploitation of business assets, we do not find any ground to accept the contention of the assessee that the nature of business carried on by the assessee would be conclusive of the nature of receipts on the letting of the property. Going by the decision in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC), when the rental income falls within the specific head of income from house property, the mere fact of the assessee having business in letting out the property as stated in its memorandum, by itself, will not conclusively point out that the income is nothing but business income. Even in the case of Commercial Properties Ltd., In re [1928] ILR 55 Cal 1057, a decision which was confirmed by the apex court, it was held that rental income derived by a company, whose sole object was to acquire lands, build houses and let them to tenants and whose sole business was management and collection of rents from the said properties, was held assessable under section 9 and not under section 10 of the Income-tax Act.

Thus, applying the decision in the case of East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC) to the facts as found by the Assessing Officer that the assessee had no other activity during 1991-92 too, this court accepts the case of the Revenue that income received from letting out of the property was rightly assessed by the officer as ‘Income from property’.”

19. Per contra, learned senior counsel for the assessee sustaining the findings of the Tribunal reiterated that the issue of expenditure on account of legal expenses is a pure question of fact and there is no involvement of question of law much less of substantial nature to interfere with the concurrent findings of facts of the authorities below. Learned senior counsel relied on the very same decisions which we have quoted in the earlier part of this judgment for this purpose.

20. We have carefully gone through the orders passed by the authorities below and that of the Tribunal. The assessing authority was of the view that since the legal expenses and other expenses incurred are not covered by section 24 of the Income-tax Act, no deduction was permissible. The appellate authority set aside the assessment and deleted the disallowance by observing that there was a direct and proximate nexus between the legal expenses incurred and the business carried on by the assessee. The Tribunal, following the decision of the Calcutta Bench of the Tribunal in a similar case of Orient Beverages Ltd. v. Asstt. CIT [1994] 49 ITD 162 (Cal.), confirmed the order of the appellate authority, the Commissioner of Income-tax (Appeals) and held that the legal charges and other expenses incurred by the assessees for their property division was allowable as a deduction in computing the profits and gains of business as the expenses resulted in substantial savings in business expenses of the assessee. The order passed by the Tribunal, in our considered view, does not suffer any infirmity, warranting our interference in this appeal.

21. The assessing authority while disallowing the expenditure on account of legal expenses held that these expenses were incurred specifically for dealing with tenants and, therefore, could be only relatable to the properties in issue and, therefore, cannot be treated as business expenditure and consequently deduction was not permissible. The appellate authority while discussing the issue at length, at pages 22 to 32 of the order, found that it was only because of initiation of legal action that deposits to the tune of Rs. 10 crores could be collected, that too, as interest-free deposits, which in turn has benefited the assessee’s business. This, in our view, would constitute a business expenditure wholly and exclusively incurred for the purpose of business and, hence, the appellate authority rightly deleted the addition. In the appeal filed by the Revenue against the said order, the Tribunal, while confirming the order of the appellate authority discussed the issue threadbare at pages 32 to 42 of the order and found that the expenditure so incurred was necessarily a business expenditure and, therefore, confirmed the order of the appellate authority deleting the addition. Both the appellate authority and the Tribunal concurrently held on facts that the expenditure termed as legal expenditure was necessary business expenditure wholly incurred for the purpose of business. The decisions cited by the learned counsel for the Revenue, viz., East India Housing and Land Development Trust (supra) and Ideal Garden Complex (P.) Ltd. (supra), in our view, are on a totally distinct and different footing as the said cases relate to income arising out of the house property. In the present case, the assessee has derived income under various heads of income and one of the income was on account of development of property. The expenses incurred to obtain deposits from the tenants by initiation of legal action was only in furtherance of the said business objective and, therefore, the expenditure would also be relatable to the same and, hence, we do not find the facts of the aforesaid cases applicable to the case on hand. The Revenue has not placed any material on record to persuade us to come to a different conclusion. As our analysis is confined to the substantial question of law, we find from the orders of the authorities below that there is no infirmity or illegality in the orders and there exists no substantial question much less any question of law on this issue.

In the result, the appeal preferred by the Revenue is dismissed. No costs.

[Citation : 359 ITR 630]