A single bench of Madras High Court held that, deduction is allowable on Legal fees and professional indemnity insurance expenses under section 37 of the Income Tax Act.
The Assessing Officer had disallowed claim of deduction qua the aforementioned payments, under Section 37 of the Income Tax Act. The reasons supplied by the Assessing Officer qua the legal fees was, that it was exorbitant and far in excess to the compensation received in the matter from the entity, which had infringed its rights in the registered software qua which, advice was received from its aforementioned legal adviser, i.e., Hammonds, U.K.
While rejecting the revenue’s contention, Justice Rajiv Shakdher observed that, “the transaction between the Assessee and its legal adviser, i.e., Hammonds U.K., which, included the amount paid towards fee was genuine. If, that be the case, surely, this argument cannot be sustained”.
Justice Rajiv Shakdher also observed that, “the legal fee paid was more than the compensation received by the Assessee, the same, was amenable for deduction under Section 37 of the Income Tax Act. Likewise, in so far as the expense incurred towards Provisional Indemnity Insurance was concerned, it could not have been disallowed, merely, by reason of the fact that Hammonds, U.K., was required to take out the insurance”.
Read the full text of the Judgment below.
