- (1.) THE following question of law has been referred for the opinion of this Court by the Income -tax Appellate Tribunal, Delhi 3256 (Del) of 1984, for the asst. yr. 1980 -81 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the legal charges amounting to Rs. 20,343 paid to M/s A.F. Ferguson and Co. were not hit by the provisions of s. 80VVof the IT Act, 1961, and were not subject to the ceiling fixed under s. 80VV -
(2.) THE assessee claimed deduction of Rs. 20,343 paid to M/s A.F. Ferguson and Co. which was disallowed on the ground that the services were rendered in respect of proceedings before the authorities and the deduction was hit by the provisions of s. 80VVof the IT Act, 1961 (for short, "the Act"). The Tribunal held that the payments were not made only for representation before the authorities but also for advice. 1989 [Dalima Biscuits (P) Ltd. vs. CIT (2008) 304 ITR 181 (P&H)] and observed : "On general principle, fee paid to professional advisors was allowable. Reference may be made to the judgment of the Hon'ble Supreme Court in CIT vs. Birla Cotton Spg. and Wvg. Mills Ltd. (1971) 82 ITR 166 (SC), wherein it was observed : 'The essential test which has to be applied is whether the expenses were incurred for the preservation and protection of the assessee's business from any such process or proceedings which might have resulted in the reduction of its income and profits and whether the same were actually and honestly incurred. It is not possible to understand how the expenditure on the proceedings in respect of the Investigation Commission by the assessee will not fall within the above rule. Even otherwise, the expenditure was incidental to the business and was necessitated or justified by commercial expediency. It must be remembered that the earning of profits and the payment of taxes are not isolated and independent activities of a business. These activities are continuous and take place from year to year during the whole period for which the business continues. If the assessee takes any steps for reducing its liability to tax which result in more funds being left for the purpose of carrying on the business there is always a possibility of higher profits . . . The expenditure which was incurred by the assessee in opposing a coercive Governmental action with the object of saving taxation and safeguarding business was justified by commercial expediency and was, therefore, allowable under s. 10(2) (xv) of the Act.'
(3.) HOWEVER , s. 80VVof the IT Act, 1961 (for short, 'the Act'), which was in force during the relevant assessment year, did not allow any expenditure on this account in excess of Rs. 5,000. Even after the above statutory amendment, it was held in K.L. Poddar & Sons (P) Ltd. vs. CIT (1991) 97 CTR (Kar) 232 : (1991) 191 ITR 365 (Kar) that s. 80VVof the Act was concerned only with representation before the authorities/Court, while the fee could be paid even for general consultation, which is not covered under s. 80VV of the Act. Relevant observations are (p. 366) : 'It is well known fact that retainer fees are paid towards general consultations, may be under particular legislations. A counsel is retained so that the assessee may have the benefit of proper legal advice as and when problems arise. The assessee may also resort to a consultation with the tax consultant for the purpose of tax planning. There may be other questions arising in the course of the assessee's business touching upon the taxation laws. These problems cannot be separated item -wise nor can the fee paid to the consultant regarding income -tax cases before the authorities and fee paid regarding other matters be apportioned. The retainer fee is to be considered as one entity for the entire services kept ready by counsel as and when the assessee seeks the advice.' In CIT vs. Volga Restaurant (2001) 170 CTR (Del) 206 : (2002) 253 ITR 405 (Del), it was observed : 'For the asst. yrs. 1976 -77 to 1985 -86, the section permitted deduction of Rs. 5,000 in respect of an expenditure incurred by the assessee in the relevant accounting year in respect of the proceedings under the Act before the IT authorities, or the Tribunal or any Court relating to the determination of any liability under the Act by way of tax, penalty or interest. The Tribunal had noted that the amount was paid as retainer fee and was not relatable to any proceedings for determination of any liability under the Act by way of tax, penalty or interest. That being the factual conclusion, the answer to the second question is in the affirmative, in favour of the assessee and against the Revenue'." In view of the above, having regard to the finding of the Tribunal that the amount was paid not only for the services rendered for representation before the authorities but also for consultation, no fault can be found with the view taken by the Tribunal in allowing the deduction.;