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TMI Blog1965 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... by one of the customers in respect of a transaction which arose in the normal course and entirely out of the business of the company were an expenditure paid out wholly and exclusively for the purpose of the company's business and a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922? The assessee is a private limited company and the dispute concerns the assessment year 1952-53, the period of account ending 30th June, 1951. The assessee's business is of import and sale of newsprint and other kinds of paper. The head office of the company is at Delhi while the branch office is in Bombay. Ranbir Singh was the manager of the Bombay branch. In the year 1941, paper for newsprint was issued on basis of qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Appellate Assistant Commissioner, who allowed the appeal and held the expenditure of ₹ 10,000 as a permissible deduction. While dealing with the matter, the Appellate Assistant Commissioner made the following observations: In my opinion, the contention of the appellant is correct. As stated above, the newsprint which was actually imported was sold by the company on its own account. The judgment of the High Court clears the Bombay manager of the charge of criminal breach of trust. The resultant position, therefore, is that whatever the manager did was in the normal course of business. Since a serious charge was brought against a trusted employee of the company questioning his action, the company was justified in arranging f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in where a criminal prosecution ends in a conviction there is no difficulty because the assessee who is guilty of a breach of the law cannot be heard to say that the costs of the litigation against him was a permissible deduction because the commission of an offence was not necessary for the purposes of his trade. The real difficulty only arises when you have a case where the prosecution terminates in acquittal. Then the true test to be applied as I suggested would be whether the assessee was charged with regard to a transaction which took place in the ordinary course of business and the other test would be whether he was charged in his capacity as a trader. If these two tests are satisfied and the court comes to the conclusion that the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the business whose profits are under computation, and cannot be affected by the final outcome of that proceeding. Income-tax assessments have to be made for every year and cannot be held up until the final result of a legal proceeding, which may pass through several courts, is announced. In Commissioner of Income-tax v. Hirjee [1953] 23 I.T.R. 427, 431 (S.C.), their Lordships were dealing with an expense incurred by an owner of business in defending himself from criminal prosecution. While dealing with this type of case, their Lordships observed as follows: If, as the High Court realised, in every criminal prosecution where the matter is defended to protect the good name of a business or a professional man, the fear of possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept in view. In the Bombay case, it was the limited company which was spending money to defend its managing director and the salesman and the charge related to a transaction which took place in the ordinary course of the business of the company while in the Rangoon case, all the partners of a firm, who were the assessees, were prosecuted for an offence and they defended themselves against the offence charged. That is why, in the Rangoon case, the leaned Chief Justice took the view that a part of the object while incurring the expenditure was to defend themselves (partners) from the possible adverse consequences of a criminal conviction, and, therefore, the expenditure could not be said to have been laid out wholly and exclusively for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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