INCOME TAX ACT, 1961

Section 37(1), Expln.

Business expenditure - Allowability - Payment to Europen Commission towards contravention of law -

AO noticed from the Annual Report for the financial year 2013-14, that the assessee company had charged Rs. 141,50,90,000 as litigation cost under the head 'other expenses'. The details of expenditure were called for by the AO and the assessee furnished its replies from time to time. On verification of the submissions made by the assessee the AO observed that during the financial year 2009-10, the European Commission ('EC'), had stated that it had initiated anti-trust proceedings against the assessee-company and other companies, each of which entered into agreements with another company Les Laboratories Servier ('Servier'), relating to a product 'perindopril'. AO, however, was not convinced with assessee's contentions and held that the levy of fined was for violation of Rules and hence the expenditure claimed as litiation cost was to be disallowed under the Explanation 1 to section 37(1). CIT(A) confirmed the order of AO. The assessee had relied upon various case laws and also CBDT Circular to argue that the violation should only be of the laws in India to be considered for disallowance under Explanation 1 to section 37(1). Therefroe, according to him, it is only laws of the land, i.e., the laws in force in India, if violated, the extent of such violation was to be disallowed. Held: What had to be disallowed under Explanation 1 to section 37(1) is a payment made, for contravention of laws in force in India and not of any foreign country. The laws are specific to each of the countries according to their rules and regulations and an offence in one country may not be so in another country. Therefore, Tribunal agree with the contentions of the assessee that it is only payment made for contravention of laws in force in India that disallowance under Explanation 1 to section 37(1) is to be made.

Relied:Desiccant Rotors International (P) Ltd. (2011) 245 CTR 572 (Del-HC) : 2011 TaxPub(DT) 2038 (Del-HC).

REFERRED : Prakash Cotton Mills (P) Ltd. (SC) (1993) 201 ITR 684, 690-91(SC) : 1993 TaxPub(DT) 1335 (SC), Swadeshi Cotton Mills Co. Ltd. (1998) 233 ITR 199, 202 (SC) : 1998 TaxPub(DT) 521 (SC), Standard Batteries Ltd. (1995) 211 ITR 444 (SC) : 1995 TaxPub(DT) 0363 (SC), Hyderabad Allwyn Metal Works Ltd. (High Court of AP) (1988) 172 ITR 113, 118-19 (AP-HC) : 1988 TaxPub(DT) 765 (AP-HC), Bharat Television Pvt. Ltd. (High Court of AP) (1996) 218 ITR 173, 175, 178 (AP-HC) : 1996 TaxPub(DT) 326 (AP-HC), Udaipur Distillery Co. Ltd. (2009) 224 CTR 32 (SC) : 2009 TaxPub(DT) 1727 (SC), Haji Aziz and Abdul Shakoor Bros. (1961) 41 ITR 350 (SC) : 1961 TaxPub(DT) 142 (SC), Maddi Venkataraman & Co. (P) Ltd. (1998) 96 Taxman 643 (SC) : 1998 TaxPub(DT) 1029 (SC), Mamta Enterprises (2004) 135 Taxman 393 (Kar.-HC) : 2004 TaxPub(DT) 1037 (Karn-HC), Sushil Gupta (2019) 102 Taxmann.com 409 (Bom-HC) : 2019 TaxPub(DT) 1529 (Bom-HC) and Nahar Spinning Mills Ltd. (2014) 49 Taxmann.com 565 (P&H-HC) : 2014 TaxPub(DT) 4253 (P&H-HC).

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 37(1)

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