only issue in this appeal is, whether certain expenses incurred by assessee amounting to Rs. 3,53,034 would be allowable as deduction. 2. assessee is non-resident company incorporated in United States. Its main activity is that of running theatre in city. shares of assessee-company are held by another non-resident company incorporated in t h e United States. It would appear that company by name Tramarsa incorporated in Switzerland was interested in getting controlling interest in companies owning theatres in India. Negotiations between Tramarsa and holding company were carried out by one Shiv Shankarlal Gupta. As result, Tramarsa purchased entire shareholdings in assessee-company and most of shares of another company called M.G.M. (Calcutta) Ltd. from American holding company for 1 million dollars. 3. Tramarsa had appointed Shri Gupta as constituted attorney to supervise business of assessee-company as well as M.G.M. (Calcutta) Ltd. 4. On 26-9-1974, Shri Gupta was detained under Maintenance of Internal Securities Act. detention order was challenged in Bombay High Court. By their order dated 30-11-1974, High Court held that detention order was bad in law. 5. Shri Gupta was again detained for second time on 1-7-1975 under COFEPOSA Ordinance. This detention was also challenged. It appears that Shri Gupta had incurred total expenses in conducting hearings amounting to Rs. 3,66,174. 6. Shri Gupta got in touch with Tramarsa and had made request to them that he should be reimbursed in respect of legal expenses incurred by him. O n 4-3-1976, Tramarsa wrote to him that his request had been considered by board of directors of Metro Theatres and that board had decided that company should bear and pay to him legal expenses that were incurred in t h t matter. Accordingly, assessee-company had paid to solicitors engaged by Shri Gupta, amount of Rs. 3,53,033 in course of March 1976 to July 1976. 7. In assessment for year, 1977-78, for which accounting year ended on 31-8-1976, assessee-company claimed payment made to Shri Gupta as business expenditure. ITO considered assessee's claim and held that claim was untenable. Against this order, appeal was filed to Commissioner (Appeals), who agreed with ITO. assessee is now on further appeal before us. 8. Shri Bansi Mehta, for assessee, submitted that expenditure was incurred by assessee-company only for purpose of business and it should have been allowed as deduction. He pointed out that business of assessee-company was closely linked with Shri Gupta. He submitted that it was Government's case before High Court in detention proceedings that Shri Gupta had illegally earned foreign exchange which was used by him in acquiring cinema theatres in benami names of foreign companies. If proceedings were allowed to be continued, properties of assessee would be in jeopardy. fact that ultimately nothing had happened was not material. He submitted that assessee had genuine fear that properties would be affected. So long as such apprehension was in mind of assessee, expenses incurred should be allowed as deduction. He further submitted that n enquiry, whether such apprehensions were reasonable or not, would be irrelevant. He relied on decision of Supreme Court in case of Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207. He further pointed out that Gujarat High Court has held in case of CIT v. Ahmedabad Controlled Iron & Steel Registered Stockholders Association (P.) Ltd. [1975] 99 ITR 567 that in criminal prosecution, where agent or employee of company is involved and company incurs expenditure for defending such employees or agents, it would be for protecting its business interests. He also submitted that under Ordinance, i.e., Smugglers & Foreign Exchange Manipulators (Forfeiture of Property) Order, 1975, Government can proceed against any associate of detenu. According to him, assessee would be associate within meaning of said Act. Shri Mehta had also placed reliance on section 222 of Indian Contract Act, 1872, and had submitted that expenses incurred by agent had to be reimbursed by principal. agent had to be reimbursed by principal. 9. Shri Roongta for department, pointed out that acquisition of properties of Metro was only one of five charges against Shri Gupta. He also pointed out that Shri Gupta was neither employee nor director nor shareholder of company. There is no nexus between him and assessee- company. He is only constituted attorney of holding company. He submitted that on facts shown, no nexus has been established between expenditure incurred and business of assessee. He also pointed out that assessee-company had not received any notice from Government nor had they associated themselves in litigation. Only after litigation is over, that Shri Gupta requested for reimbursement. There is not even remote connection with assessee's business. 10. We have considered facts of case. principle involved in deciding whether legal expenses incurred by company are allowable or not, is fairly well settled. case laws on point have all been catalogued by Calcutta High Court in case of Albert David Ltd. v. CIT [1981] 131 ITR 192. principle called out from these case laws is that expenses should be for protecting business of assessee-company or for preserving business assets of company. If. either of two objects is not affected by litigation, then expenditure cannot be considered as permissible deduction. We, therefore, have to consider whether factually, assessee had established nexus with either business assets or running of business. We will consider both these issues. 11. We will first take up question whether expenses are connected with business assets. Shri B.S. Mehta had emphasized this by pointing out that Metro Theatre building owned by assessee would be in jeopardy if litigation proceedings had been continued. Therefore, expenses, according to him, were to protect business assets. We are of opinion that facts do not support assessee's contention. Shri Gupta had been detained under COFEPOSA mainly on five grounds. These grounds are that he h d underinvoiced imports and exports, that he had retained secret bank account abroad and in foreign countries and that he had utilised foreign exchange in said accounts for buying property in India. These three grounds were grounds in which he was detained under MISA in 1974. In detention order under COFEPOSA, these grounds were again repeated with two additional grounds. additional grounds, as per order of High Court discharging him, are found at pages 225 to 318. grounds would be summarized as follows: searches conducted in premises would show that in deal regarding transfer of Metro Theatre, assessee itself was buyer and Swiss company was only benami of Shri Gupta. High Court found that none of these grounds would be sufficient for detention. Now, out of above grounds, only one ground has something to do with assessee. That is ' Metro Deal '. Now, Shri B.S. Mehta's submission is that since ground is about purchase of Metro Theatre, if detention order was not challenged, property would pass on to other persons. This would affect assessee's business. litigation expenditure could, therefore, be for protecting assessee's property. We are afraid that such inference does not follow from facts. It is nobody's case that Shri Gupta owned Metro Theatre. Even charge, as understood by High Court is that Metro Theatre was purchased in benami name of Swiss company Therefore, charge of Government against Shri Gupta is that Swiss company ' Tramarsa' is only benami of Shri Gupta. If litigation had gone unchallenged, result would be that Shri Gupta might be stripped of his holdings in Tramarsa. That would not affect property of assessee. It is well settled in law that company is different from shareholders. shares of company may change hands, but company's existence would not be affected by change of shareholders. right of shares being same, it is immaterial whether at any given point of time shares are held by one individual or other. That would not affect business assets of company or conducting of business of company. 12. direct authority on this point is decision of Calcutta High Court in Albert David Ltd.'s case. Therein, there was litigation between two groups of shareholders regarding ownership of certain shares. company was also impleaded. One group of shareholders owed company's certain funds. company was impleaded and expenses were claimed by company as company was impleaded and expenses were claimed by company as business expenditure, on ground that debt due from one group of shareholders was business asset and expenses were, therefore, for purpose of preserving business assets. Rejecting this contention, Calcutta High Court observed as under: " . . . it appears to us that there was sufficient material before Tribunal to come to conclusion that said litigation was really offshoot of disputes and quarrels between two groups over control of assessee. It is quite clear that assessee was being used as springboard. persons in charge of assessee at material time sought to quantify assessee's dues from Judah, its ex-director and shareholder, on unrealistic basis so that his means of control of assessee, viz., his shares, could be immobilised. Judah fought back with all suitable means so that he could regain his control over assessee and in course of such fight, no doubt, part of book debt in company became involved. But it cannot be said that in litigation company was only seeking to preserve its book debts as business asset. . . ." From above quotation, it would be seen that where litigation affected rights of shareholders and did not affect rights of assessee-company over business assets, no expenditure could be treated as allowable. 13. It was also submitted before us that expenditure was necessary to continue business of company as it was being done then. It was Shri Mehta's submission that change in shareholding or change in controlling affairs would lead to change in pattern of business. But that is of no consequence for company. This is also point covered by authority. We may refer to decision of Bombay High Court in case of Harinagar Sugar Mills Ltd. v. CIT [1979] 117 ITR 945. In that case, assessee-company incurred business expenditure in respect of two different litigations. first litigation was in resisting application for transfer of shares by one set of shareholders. Bombay High Court has held that such expenditure was not business expenditure of company, since nexus with business of company was not established. second type of litigation expenditure considered in that decision is expenditure incurred in resisting appointment of inspector to report on affairs of company. Bombay High Court held that such expenditure incurred was not for preserving fair name of company. It was only for purpose of saving persons, who were charged with mismanagement. High Court observed: " What we have to consider in this case is whether preventing investigation of affairs of assessee-company pursuant to report made by Registrar of Companies was step taken honestly and reasonably to promote interest of business of assessee-company. assessee- company could well have preserved its fair name by proving to investigator that so far as affairs of company were concerned, they were clean and untarnished, but instead of doing so, ostensibly with object of screening persons who were guilty of mismanagement of affairs of company proceedings were adopted which ultimately failed. Such expenses could not, therefore, be regarded as expenses incurred for promoting interest of business of assessee-company and have been rightly disallowed by taxing authorities and Tribunal." On above principles, it would be seen that expenditure involved has nothing to do with conduct of assessee's business. We, therefore, hold that no nexus has been established. 14. Shri Roongta had pointed out that Shri Gupta had no locus standi at all with assessee-company. Shri Gupta was not shareholder of company or director or even employee. He was merely constituted attorney of Tramarsa. We find this to be fact. Shri Gupta has no legal claim in respect of assessee-company. If at all, Tramarsa might be person affected by any adverse order passed by authorities in this litigation. If at all, expenses might be expenses of Tramarsa. It could not be expenditure of assessee-company. In order to meet this point, Shri Mehta had submitted that for this purpose, no distinction should be made between subsidiary company and holding company. activities of holding company would be affecting subsidiary company and so any expenditure of holding company has to be considered as expenditure of subsidiary company because of its impact on it. We are unable to accept this submission. In law, holding company is separate from subsidiary company. holding company merely holds majority shares in subsidiary company. shareholders might change, but it will not in law affect either business or business assets of subsidiary company. 15. Shri Mehta had also referred to provisions of COFEPOSA and had submitted that it was open for Government to proceed against associates of detenu. According to him, assessee would be one such associate. We are unable to accept this submission either. associate, if at all, will be Swiss company. assessee-company does not come within definition of ' associate ' for this purpose. 16. Much reliance had been placed on decision of Supreme Court in case of Sree Meenakshi Mills Ltd. It was submitted that irrespective of outcome of litigation, irrespective of whether litigation was ill-advised or not, expenditure should be allowed if assessee had honestly felt that it would affect business. We are unable to accept submission that ratio in that case would be applicable to facts of case. As pointed out by Calcutta High Court in case of Albert David Ltd., Supreme Court was allowing expenditure incurred by assessee to resist in civil proceeding enforcement of measure---legislative or executive---which imposed restrictions on carrying on of business, or to obtain declaration that measure is invalid would, if other conditions are satisfied, be admissible. It will be seen that measures taken by Government should impose some restrictions on carrying on of business; then only principles would be applicable. Whether assessee's attempt in resisting measure is foolhardy or not, will not be question then. In case before us, nexus with business is not at all established. Therefore, assessee's case is lost at threshold itself. principles of Sree Meenakshi Mills Ltd.'s case will not be applicable. 17. Reliance placed by him on section 222 is also out of place. assessee is not principal and Shri Gupta is not its agent. Shri Gupta, at best, may be agent of Swiss company. 18. Thus, on all considerations of facts, we are of opinion that assessee is not entitled to deduction. appeal is dismissed. *** METRO THEATRE BOMBAY LTD. v. INCOME TAX OFFICER