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TMI Blog1970 (3) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of 9.841.15.9 as representing the true and correct value of mild steel bars, did not use 480, out of that amount, for the purpose for which the foreign exchange had been acquired. The defense of the accused was that the foreign exchange had ben utilised for the very purposes for which it had been acquired namely, for remittance to Messrs. Ironside Ltd., London, who actually placed the order on a Japanese concern for the supply of the goods. The Chief Presidency Magistrate as per judgment dated December 14. 1957, held that foreign exchange acquired by the assessed-firm had been utilised for the purpose for which it had been acquired and no portion of it had remained unused. He, accordingly, acquitted the accused. The assessed-firm incurred an expenditure of ₹ 6,000.00 on the defense of Chaman Lal during the previous year ending on March 31. 1958, relevant to the assessment year 1958-59. (3) The assessed-firm claimed that the expenditure of ₹ 6,000.00 should be deducted in computing its business income. The Income- tax Officer held that the said expenditure of ₹ 6,000.00 was not incidental to the assessed firm's business and rejected the firm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are concerned with clause (xv) of sub-section (2) and it reads as under:- ANY expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessed laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. (5) The controversy between the parties centres round the point as to whether the litigation expense of ₹ 6,000.00 constitutes an expenditure laid out or expended wholly 'and exclusively for the purpose of the business of the assessed. In order to bring the expenditure within the ambit of the words wholly and exclusively , it would have to be shown that the expenditure in its entirety was laid out and expended for the purpose of the business of the assessed and for no other purpose. If part of the expenditure was laid out or expended for a purpose other than that mentioned in clause (xv) or if the purpose of the business of the assessed and or if the purpose of the expenditure was not solely and exclusively the business, profession or vocation of the assessed, the expenditure would not attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y optimistic, or over-confident in his conviction the assessed may appear in the light of the ultimate decision, expenditure in starting and prosecuting the proceeding may not be denied admission as a permissible deduction in computing the taxable income, merely because the proceeding has failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively, i.e.. reasonably and honestly incurred to promote the interest of the business. Persistence of the assessed in launching the proceeding and carrying it from court to court and incurring expenditure for that purpose again cannot be a ground for disallowing the claim. It was further observed : under section 10(2)(xv) of the Indian, Income Tax Act, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction. Expenditure on civil litigation commenced or carried on by an assessed for protecting the business is admissible as expenditure under section 10(2)(xv) provided other conditions are fulfilled ,even though the expenditure does not directly relate to the earning of income. Expenditure incurred not with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood name of a business or a professional man, the fear of possible fine or imprisonment must 'always be there, it must ordinarily be difficult for any court to say, that the expenses incurred for the defense, even if they are not to be regarded as the 'personal expenses' of the person accused, constituted 'expenditure laid out or expended wholly and exclusively for the purposes of the business'. Learned counsel for the respondent frankly admitted that he was not able to find a single case in the books where the expenses incurred by a person exercising a trade or profession in defending a criminal prosecution, which arises out of his business or professional activities, were a lowed to be deducted in the assessment of his profits or gains for Income Tax purposes. (7) Reference was then made in the above case to the decision of the Bombay High Court in the case of J.B. Advani v. Commissioner of Income Tax [1950]18ITR557(Bom) wherein a distinction had been drawn between legal expenses of a successful and unsuccessful defense in a criminal case, Patanjali Sastri. C.J., in this context observed: NO Rare we satisfied, as at present advised, that a distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Spofforth in his personal capacity. No doubt Mr. Spofforth was an important member of the firm, and his conviction, 'and still more his imprisonment, would have been a severe blow to it. That, however, is not the test. It is not every expenditure made by a firm which falls within the definition, however prudent it may be, even though it may tend to benefit the firm. (10) The above case was referred to with approval by their Lordships of the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income Tax, Bombay (1960) 41 Itr 350. The assessed in that case was carrying on the business of importing dates from abroad and selling them in India. He imported dates from Iraq by a steamer at a time when import of dates was prohibited. The dates were confiscated and were -released on the assessed paying fine under Section 183 of the Sea Customs Act. The assessed sought to deduct the amount paid as fine as an allowable expenditure under Section 10(2)(xv) of the Act. It was held that expense paid by way of penalty for a breach of the law. even though it might involve no personal liability, was not an allowable deduction. Mr. Keshav Dayal, on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, because, in our opinion, a partner, though he acts as the agent of the firm, cannot be deemed to be an employee. A partner is one of proprietors of the business concern and his position is somewhat similar to that of a joint owner and cannot be relegated to that of an employee. (13) Reference on. behalf of the assessed has been made to the case of Rohtus Industries Lid. v. Commissioner of Income Tax, Bihar and Orissa [1968]67ITR361(Patna) . The assessed-company produced vanaspati oil. Its directors and principal officers were prosecuted under the Essential Supplies Temporary Powers Act. on the allegation that the vegetable oil produced by the company did not con- lain 5% til oil as required by the Order made under that Act. The Company incurred an expenditure in defending the case and the officers were acquitted. On a claim made by the company to deduct the expenses under Section 10(2) (xv) of the Act, it was held by a Division Bench of the Patna High Court that it was a permissible deduction. The learned Judges dealt with the matter in the following words: THE prosectution was on the ground that those goods were below the standard and the company had to defend the quali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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