JUDGMENT Mahendra, J.—The Income Tax Appellate Tribunal, Bangalore Bench, (hereinafter referred to as "the Tribunal"), at the instance of the assessee has referred the following question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the legal expenses of Rs. 11,500 was not liable to be allowed against the dividend income of the assessee ?" 2. In order to appreciate the question referred to us, it is necessary to notice, in the first instance, the facts as found by the Tribunal. 3. Messrs. United Breweries Limited, 32, Grant Road, Bangalore, a public limited company carrying on business in the manufacture and sale of beer is an assessee under the Income Tax Act, 1961 ("Act"). For the assessment year 1971-72 relevant to the accounting year ending on March 31, 1971, the assessee in its return claimed an allowance of Rs. 11,500, being the legal expenses incurred in connection with a case filed by it against Ruttonjee & Co. Ltd. The Income Tax Officer, by his order of assessment, annexure "A", made on September 21, 1972, disallowed the said claim following the reasons given for disallowing the same in the previous years. On appeal by the assessee, the Appellate Assistant Commissioner of Income Tax, by his order made on September 4, 1975 (annexure B), upheld the same following the decision of the Tribunal for earlier assessment years. On a further appeal by the assessee, the Tribunal, by its order made on August 7, 1976 (annexure D), following its order for the earlier years, affirmed the order of the Appellate Assistant Commissioner and dismissed the appeal. Hence, this reference. 4. Mr. G. Sarangan, learned counsel for the assessee, submitted that the assessee has 88.2% of the shares in Ruttonjee & Company Limited which was a subsidiary company of the assessee and the legal expenses incurred was wholly and exclusively for the purpose of the business of the assessee and is, therefore, allowable under section 37(1) of the Act. He also submitted that, in any event, the legal expenses incurred is wholly and exclusively for the purpose of safeguarding the investment of the assessee and for earning dividends and, therefore, allowable under section 57(iii) of the Act. In support of his submissions, Mr. Sarangan placed reliance on the following rulings in J.K. Commercial Corporation Ltd. Vs. He also submitted that, in any event, the legal expenses incurred is wholly and exclusively for the purpose of safeguarding the investment of the assessee and for earning dividends and, therefore, allowable under section 57(iii) of the Act. In support of his submissions, Mr. Sarangan placed reliance on the following rulings in J.K. Commercial Corporation Ltd. Vs. Commissioner of Income Tax, (1969) 72 ITR 296 All, Commissioner of Income Tax Vs. East India Development Co. (P.) Ltd., (1979) 120 ITR 655 Cal, Seth R. Dalmia Vs. The Commissioner of Income Tax Delhi, New Delhi, AIR 1977 SC 2394 and Ruttonjee & Co. Ltd., In re [1970] 40 Comp Cas 491 (Cal). 5. Mr. K. Srinivasan, learned senior standing counsel for the Revenue, submitted that legal expenses are not incurred wholly and exclusively for the purpose of safeguarding the investments or earning dividends or for the purpose of the business of the assessee and, therefore, not allowable. 6. The claim of the assessee was disallowed for the assessment year in question for the very reason its claim was disallowed for the previous years by the Tribunal in its order made on February 11, 1974, in Income Tax Appeals Nos. 706, 707 and 708/Bang/1971-72 as no fresh grounds were urged before the Tribunal (annexure C). The Tribunal has held that the proceedings taken by the assessee before the Calcutta High Court were for calling for a general body meeting under section 186 of the Companies Act, 1956, and had nothing to do with the business of the assessee and the proceedings had also nothing to do with the earning of dividends by the assessee. 7. Ruttonjee & Company Limited, it is not in dispute, is a subsidiary company of the assessee and 88.2% of the shares in the subsidiary company is held by the assessee. The business of the subsidiary company can be regarded as the business of the parent company only when in addition to the capital control, it has "functional control" over its subsidiary. It was conceded on behalf of the assessee in Commissioner of Income Tax, Mysore Vs. United Breweries, (1973) 89 ITR 17 KAR "that the assesses company and its subsidiaries were separate legal entities and the latter are not mere emanations of the former". It was conceded on behalf of the assessee in Commissioner of Income Tax, Mysore Vs. United Breweries, (1973) 89 ITR 17 KAR "that the assesses company and its subsidiaries were separate legal entities and the latter are not mere emanations of the former". The two companies, i.e., the assesses company and Ruttonjee & Company Limited are, therefore, two separate legal persons and the business of one is not the business of the other. 8. The legal expenses were incurred in the proceedings taken by the assessee before the Calcutta High Court under section 186 of the Companies Act, 1956, and the order in the said proceedings is reported in Ruttonjee & Company Limited, In re [1970] 40 Comp Cas 491. "The company was initially started at the initiative of the Bhesanias with the financial backing of the Mallya group. For some time, the company was functioning smoothly as the two groups were working in cohesion. From August/September, 1965, disputes and differences between the two groups started arising on various matters including payment of royalties to the United Breweries Ltd. These disputes and differences were not settled through dialogues or negotiations and the breach gradually appeared to be final. The annual general meeting that was to be held on September 28, 1965, failed due to want of quorum. It is not alleged, however, that any one deliberately kept himself away from the meeting with a view to create any difficulties. Thereafter, the two groups wanted to have their annual general meeting in their own way and the present position is that the Mallya group is contending that the Bhesanias have ceased to be directors and the Bhesania group says that A.K. Thakur and Sukumar Roy are not duly elected directors. Sookamal Kanti Ghose has, it is alleged in paragraph 17 of the petition, tendered his resignation on November 9, 1965." With this background, the assessee filed an application under section 186 of the Companies Act, 1956, to call a general meeting for (1) Removing all existing directors and/or persons claiming to be directors, (2) Accepting the resignation tendered by Sookamal Kanti Ghose by his letter dated November 9, 1965. (3) Electing and appointing new directors. (4) To consider the situation arising out of the litigation between rival claimants for the office of directors of the company and to pass necessary resolutions for the proper management of the business of the company. (3) Electing and appointing new directors. (4) To consider the situation arising out of the litigation between rival claimants for the office of directors of the company and to pass necessary resolutions for the proper management of the business of the company. (5) To consider and decide where the registered office of the company should be maintained or located." 9. The court has observed "it is manifest that the Mallya group wants to eliminate the Bhesanias group from the board altogether although at the inception, it was solemnly agreed that two of the Bhesanias would be permanent directors" and held that the manner in which the petitioner has asked for the removal of the permanent directors does not reveal a laudable motive. One of the allegations made against the directors in that case was that they do not want any royalty to be paid to the assessee. It was argued on behalf of the company that if the royalty as claimed is to be paid, the company would not be able to pay off its debts or to declare any dividends to its shareholders as it was not in the interest of the company and it is to achieve this object, the petitioner was anxious for a change in the board of directors. The object of filing the application, it is, therefore, clear, was to eliminate one set of directors and take over control of the management of the company. The object of filing this application was not for calling a meeting for declaring dividend. 10. Section 37(1) of the Act extends the allowance of items of business expenditure not covered by the preceding sections and covers cases of business expenditure only and the expenditure should be incurred for the purpose of or in connection with the assessee's own business profits which are under assessment Commissioner of Income Tax, Mysore Vs. United Breweries, (1973) 89 ITR 17 KAR. 11. In J.K. Commercial Corporation Ltd. Vs. Commissioner of Income Tax, (1969) 72 ITR 296 All, the court held that the sums of Rs. 77,158 and Rs. 11,891 being the legal and traveling expenses respectively incurred by the assessee for preservation and protecting its dividend income and to ensure the prospective dividend earning capacity of certain shares which it had purchased in a company for Rs. Commissioner of Income Tax, (1969) 72 ITR 296 All, the court held that the sums of Rs. 77,158 and Rs. 11,891 being the legal and traveling expenses respectively incurred by the assessee for preservation and protecting its dividend income and to ensure the prospective dividend earning capacity of certain shares which it had purchased in a company for Rs. 15 lakhs were necessary for the preservation and protection of its investment and, hence, were allowable under section 12(2). In Seth R. Dalmia Vs. The Commissioner of Income Tax Delhi, New Delhi, AIR 1977 SC 2394 , the Supreme Court has approved the decision of the Allahabad High Court in J.K. Commercial Corporation Ltd. Vs. Commissioner of Income Tax, (1969) 72 ITR 296 All. 12. In Commissioner of Income Tax Vs. East India Development Co. (P.) Ltd., (1979) 120 ITR 655 Cal, the facts were these : 13. The assesses company carried on business in share dealings. The assessee was also getting income by way of commission from managing agency and from sub-letting a portion of its office premises to M/s. K. P. Limited and another portion to S. G. A. Ltd., on a rent of Rs. 2,587 per month. The assessee instituted a suit in the year 1963 for ejectment of the sub-tenant S. G. A. Ltd. The suit was compromised as a result of which the sub-tenant vacated 2,700 sq. feet and also increased the rent of the portion occupied by it from Rs. 2,587 per month to Rs. 3,386 per month. The space vacated was sub-let by the assessee to M/s. K. P. Ltd. and the rent payable by it was increased from Rs. 3,812 per month to Rs. 9,800 per month. The Income Tax Officer rejected the claim of the assessee for deduction from the rental income of the sum of Rs. 17,974 and Rs. 31 on account of expenses incurred for the suit. On appeal, the Appellate Assistant Commissioner upheld the assessment. On further appeal, the Tribunal held that the expenditure was incurred wholly and exclusively for increasing the rental income of the assessee and was an allowable deduction. 17,974 and Rs. 31 on account of expenses incurred for the suit. On appeal, the Appellate Assistant Commissioner upheld the assessment. On further appeal, the Tribunal held that the expenditure was incurred wholly and exclusively for increasing the rental income of the assessee and was an allowable deduction. On a reference at the instance of the Revenue, the Calcutta High Court held that the ejectment suit had ultimately led to a substantial increase of the rental income of the assessee and on facts found by the Tribunal, the conclusion that expenses were allowable as deduction under section 57(iii) of the Act, cannot be said to be perverse. In this case, the legal expenses were incurred by the assessee wholly and exclusively for increasing the rental income of the assessee. 14. In the case before us, as already noticed, the proceedings taken by the assessee before the Calcutta High Court were not for the purpose of the business of the assessee. The expenses were incurred by the assessee in connection with a litigation arising from a domestic quarrel between the assesses a shareholder-and the directors of Ruttonjee & Co. Ltd. which was carrying on business of its own and not the business of the assesses company. The legal expenses incurred in the course of carrying on of the assessee's business is an allowable deduction. In this case, the legal expenses are not incurred in the course of carrying on of the assessee's business and is, therefore, not an allowable deduction as the purpose of calling for the meeting had nothing to do with the business of the assessee. The decisions referred to above and relied on by learned counsel for the assessee are, therefore, distinguishable and are of no assistance to the assessee. It is, therefore, not possible to agree with learned counsel for the assessee that the legal expenses were incurred for the purpose of or for protecting the business of the assessee. 15. The application filed by the assessee before the Calcutta High Court as already noticed was not with any laudable object but with the only object of removing the directors and taking over control of the management of Ruttonjee & Company Limited. The object of filing the application was not for calling a meeting for declaring dividend. One of the complaints by the assessee was that Ruttonjee & Co. Ltd. was refusing to pay royalty. The object of filing the application was not for calling a meeting for declaring dividend. One of the complaints by the assessee was that Ruttonjee & Co. Ltd. was refusing to pay royalty. According to Ruttonjee & Co. Ltd., payment of royalty as claimed would not be in the interest of the company as it would have dwindled the income and the company would not be able to pay its debts or declare dividends. It is not even the case of the assesses that the application before the Calcutta High Court was to call for a meeting to declare dividend. It is only expenditure laid out or expended wholly and exclusively for the purpose of earning dividend that is allowable as deduction. The legal expenditure incurred by the assessee is not an expenditure incurred for earning dividend and it is, therefore, not allowable as a deduction. 16. We are, therefore, satisfied that the legal expenses of Rs. 11,500 were not incurred by the assessee wholly and exclusively for the purpose of earning dividend and the Tribunal was right in holding that the legal expenses incurred by the assessee were not liable to be allowed against the dividend income of the assessee. 17. In the light of our above discussion, we answer the question referred to us in the affirmative, in favour of the Revenue and against the assessee. But, in the circumstances of the case, we direct the parties to bear their own costs.