Looking back in the history of countries landmark judgements, we can see that some decisions made by the court have greatly impacted the way the country functions. Today we will look back on Mangalore Ganesh Beedi Works vs CIT (SC) judgement.
The facts of the case indicate that in 1939 late Sri S. Raghuram Prabhu started the business of manufacturing beedis. He was later joined in the business by Sri Madhav Shenoy as a partner and thus M/s. Mangalore Ganesh Beedi Works came into existence with effect from 28th February, 1940.
The partnership firm was dissolved due to differences between the partners. Subsequent to dissolution an auction conducted for taking over the business of 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 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 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.
The Supreme Court observed that in Dalmia Jain & Co. Ltd. v. CIT  81 ITR 754 (SC) it was held that the expenses for the purposes of protecting the business of the assessee as a going concern was allowable under section 37(1) 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 fact was perverse in any manner whatsoever. Therefore, the legal expenses incurred for protecting the business were allowable as deduction under section 37(1) of the Act.
The Intellectual Property Rights such as trademarks, copyrights and know-how come within the definition of ‘plant’ 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 is acquisition of a capital nature. Therefore, the trademarks, copyrights and know-how acquired by the assessee would come within the definition of ‘plant’ being commercially necessary and essential as understood by those dealing with direct taxes. Therefore, the assessee is entitled to the benefit of section 32 read with section 43(3) of the Act.
M/S Mangalore Ganesh Beedi Works vs Commissioner Of Income TaxIN THE SUPREME COURT OF INDIA