The partnership firm was dissolved due to differences between the partners. Subsequent to dissolution an auction conducted for taking over the business of\u00a0\u00a0\u00a0 the earstwhile partnership firm on going concern basis, three of the earstwhile partners of the partnership firm formed an AOP and emerged as the highest bidders of the auction. Thereafter, they continued the business in the name of\u00a0\u00a0\u00a0\u00a0 the AOP. In A.Y. 1995-96, the assessee claimed deduction of legal expenses as revenue expenditure allowable under section 37(1) of the Act. The AO disallowed the claim of the assessee. The CIT(A) and ITAT allowed the claim of the assessee\u00a0 on the ground that the legal expenses incurred for defending the business of the going concern and for protecting its interest could not be said to be personal in nature nor could it be said that the expenses were unreasonable or not bona fide. The High Court reversed the finding of the Tribunal.<\/p>\n
\u00a0<\/p>\n
Whether legal expenses incurred for defending the business of the going concern and for protecting its interest could be said to be incurred for the purpose of the business and therefore, allowable under section 37(1) of the Act?<\/p>\n
\u00a0<\/p>\n
The Supreme Court observed that in Dalmia Jain & Co. Ltd. v.\u00a0 CIT\u00a0 [1971] 81\u00a0 ITR 754 (SC) <\/em><\/strong>it was held that the expenses for the purposes of protecting the business of the\u00a0 assessee as\u00a0 a\u00a0 going concern was\u00a0 allowable under section 37(1)\u00a0 of the Act. The Supreme Court held that there is a clear finding of fact by the Tribunal that the legal expenses incurred by the assessee were for protecting its business and there is no reason to reverse this finding of fact particularly since nothing has been shown to conclude that the finding of\u00a0 fact was perverse in\u00a0 any manner whatsoever. Therefore, the legal expenses incurred for protecting the business were allowable as deduction under section 37(1) of the Act. (AY. 1995-96) (CA Nos. 10547-10548 of 2011 dated 15\/10\/2015)<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n The assessee had also claimed deduction under Section 35A\u00a0 and\u00a0 35AB of\u00a0 the Act for acquisition of Intellectual Property Rights such as rights over the trademark, copyright and technical know-how. In the alternative, the assessee claimed depreciation on capitalizing the value of the Intellectual Property Rights\u00a0 by treating them as plant. The AO and CIT(A) rejected the claim of the assessee. The ITAT\u00a0 allowed the claim of the assessee that the Intellectual Property Rights\u00a0\u00a0\u00a0\u00a0 is Plant and therefore, depreciation can be claimed. The High Court reversed the decision of the ITAT.<\/p>\n \u00a0<\/p>\n Whether the expenditure incurred on the acquisition of trademarks, copyrights\u00a0\u00a0 and know-how is allowed for depreciation under Section 32 of the Act, read with Section 43(3) of the Act?<\/p>\n \u00a0<\/p>\n The Intellectual Property Rights such as trademarks, copyrights and know-how come within the definition of \u2018plant\u2019 for the reason that in a large business, control over intellectual property rights such as brand name, trademark etc. are absolutely necessary. Moreover, the acquisition of such rights and know-how\u00a0\u00a0\u00a0 is acquisition of a capital nature. Therefore, the trademarks, copyrights and know-how acquired by the assessee would come within the definition of \u2018plant\u2019 being commercially necessary and essential asunderstood by those dealing with direct taxes. Therefore, the assessee is entitled to the benefit of section 32\u00a0 read with section 43(3) of the Act. (AY.\u00a0 1995-96) (CA Nos. 10547-10548 of 2011\u00a0\u00a0\u00a0 dt. 15-10-2015)<\/p>\n Editorial: <\/em><\/strong>For issue no. 1: The Supreme Court has followed the decision in<\/p>\n The decision in Mangalore Ganesh Beedi Works v. CIT <\/em><\/strong>has been followed in<\/p>\n \u00a0<\/em><\/strong><\/p>\n \u00a0<\/em><\/strong><\/p>\n For issue no 2: Section 32 of the Act as it\u00a0 stood for A.Y.\u00a0 1995-96 did not\u00a0 make any distinction between tangible and intangible assets for\u00a0 the\u00a0 purposes\u00a0 of depreciation. Subsequently, the Act has been amended to provide for 25% depreciation on intangibleassets like trademark, copyrights, patents, etc.<\/p>\n \u00a0<\/p>\n \u201cFor me, the different religions are beautiful flowers from the same garden, or they are branches of the same majestic tree. Therefore, they are equally true, though being received and interpreted through human instruments equally imperfect.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" S.37(1) : Business expenditure \u2013 Legal expenses incurred for protecting the business of the firm \u2013 Held to be allowable business expenditure \u2013 Held, finding of fact by the Tribunal cannot be disturbed unless it found to be perverse.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13316","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3sM","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13316","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13316"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13316\/revisions"}],"predecessor-version":[{"id":13317,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13316\/revisions\/13317"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13316"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13316"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13316"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Facts<\/h3>\n
Issue<\/h3>\n
Held<\/h3>\n
\n
DCIT v. B. Kumara Gowda (2017) 396 ITR 386 (Karn.)(HC)<\/h4>\n