Punjab-Haryana High Court
Hindustan Milkfood Manufacturers Ltd. vs Commissioner Of Income-Tax on 7 March, 1989
Equivalent citations: [1989]179ITR302(P&H)
JUDGMENT Gokal Chand Mital, J.
1. The Income-tax Appellate Tribunal, Chandigarh, has referred the following questions for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal rightly upheld the disallowance of the expenditure of Rs. 7,732 ?
2. Whether the Appellate Tribunal has been right in law in holding that the assessee was not entitled to deduction of surtax payable by it in pursuance of the Companies (Profits) Surtax Act, 1964, in arriving at the taxable income ?"
2. We had occasion to deal with a question identical to question No. 2 in Income-tax Reference No. 99 of 1980, (Highway Cycle Industries Ltd. v. CIT [1989] 178 ITR 601 (P & H)), and by order dated November 15, 1988, we decided the matter in favour of the Revenue. Since no fresh material to take a different view is pointed out, for the reasons recorded in the aforesaid decision, we answer question No. 2 in favour of the Revenue, that is, in the affirmative.
3. For giving opinion on question No. 1, the facts may be noticed. The assessee wanted to purchase land at Nabha and Bangalore for expansion of their manufacturing activities and in order to do so sought legal advice from B. C. Das Gupta and Co. For the legal advice tendered, Rs. 7,732 were paid to the aforesaid company. Ultimately, land was not purchased. When the matter came before the income-tax Officer, deduction of Rs. 7,732 was claimed by way of revenue expenditure. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim of deduction on the ground that the expenses incurred were in connection with the purchase of capital assets and the amount paid to the legal adviser would thus be in the nature of capital expenditure. The assessee failed even before the Tribunal.
4. Shri G. C. Sharma, Senior Advocate, has argued that the expenditure can be capital expenditure when it is of an enduring benefit or enduring nature, whereas, in this case, legal advice was sought in order to purchase land for expansion of the industrial undertaking and since, ultimately, the land was not purchased, as it was not considered feasible, the assessee did not acquire any benefit of enduring nature, and, therefore, the expenditure could not be considered to be of a capital nature and, in fact, was revenue expenditure. In the alternative, it was urged that the fee paid for legal advice was in the course of the business of the assessee and the said fee could not be added to the value of the land even if ultimately the land had been purchased and such an expense would always be revenue expenditure and for this proposition placed reliance on India Cements Ltd. v. CIT [1966] 60 ITR 52, a Supreme Court decision.
5. On the other hand, learned counsel for the Revenue has placed reliance on Rajasthan Construction Co. (P.) Ltd. v. CIT [1984] 148 ITR 61, a decision of the Bombay High Court, for the proposition that litigation expenses for filing a suit for specific performance even if an asset is not acquired is of a capital nature, and, therefore, the legal fee paid in this case should also be considered as a capital expenditure.
6. After hearing the rival contentions of the parties, we are of the view that the fee paid for obtaining legal advice on the peculiar facts and circumstances of the case was of revenue nature. In India Cements' case [ 1966] 60 ITR 52 (SC), even the lawyer's fee paid for obtaining loan from a financial institution was held to be revenue expenditure and we find no difficulty in following that decision for deciding the question before us in the same terms. The decision in Rajasthan Construction Co.'s case [ 1984 ] 148 ITR 61 (Bom), is clearly distinguishable, as there the question was not whether the fee paid for obtaining legal advice amounted to ah expense of a revenue or capital nature. The question was regarding the litigation expenses. Whether that decision is right or not is not the point before us.
7. Accordingly, we answer question No. 1 in favour of the assessee, that is, in the negative and hold that the Tribunal was not right in disallowing the expenditure of Rs. 7,732. No costs.