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TMI Blog1974 (7) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years in question under section 10(2)(xv) of the Act. The Income-tax Officer held that the breaches committed by the accused were not in the normal course of discharge of their duties nor were they acquitted honourably. He accordingly disallowed the expenses. The assessee's appeal before the Appellate Assistant Commissioner of Income-tax also failed. The assessee then preferred a second appeal before the Income-tax Appellate Tribunal. The Tribunal, relying upon its decision on the assessee's appeal for the assessment year 1951-52, rejected the appeals. The Tribunal also rejected the assessee's application for a reference under section 66(1) of the Act, on the ground that a similar application had been rejected by the High Court under section 66(2), relating to the assessment year 1951-52. The assessee then moved the High Court under section 66(2) of the Act. A Division Bench of this court, however, allowed the application on the ground that the decision of the Supreme Court in Commissioner of Income-tax v. H. Hirjee, relied upon by the earlier Bench, could be distinguished and directed the Tribunal to submit a statement of the case. In compliance with this order the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for business considerations is an inference to be drawn from the facts of each case and the attending circumstances. Generally, there is no difficulty in judging whether such an inference has been correctly drawn in respect of expenses incurred on a civil litigation arising out of the conduct of the business of an assessee. The courts have, however, felt some difficulty in answering a similar question relating to expenses incurred in criminal litigation. In Commissioner of Income-tax v. Hirjee the Supreme Court had to deal with a similar question. There the assessee carried on business as selling agent of Bengal Potteries Ltd. He was prosecuted under section 13 of the Hoarding and Profiteering Ordinance, 1943, on the charge that he had sold the goods at a price which was unreasonable. The Income-tax Officer had disallowed the expenditure. Ultimately, the matter went up before the Income-tax Appellate Tribunal. On behalf of the department it was contended that since in the criminal prosecution there was a chance of the assessee being convicted and punished, any expenditure incurred by the assessee to save himself from punishment could not be said to be wholly and exclusively laid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses that the conviction might result in a sentence of imprisonment and that, in the absence of such proof, there was, at the most, only a chance of conviction and fine. " Their Lordships observed further : " If, as the High Court realised, in every criminal prosecution where the matter is defended to protect the good name of a businessman 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 defence, 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'. " This judgment was interpreted differently by various High Courts. Some High Courts held that expenditure incurred in criminal litigation was not to be allowed as a deduction in any case while other High Courts held that such expenses could be allowed if they were incurred in connection with the prosecution of the employees of the assessee and not the assessee himself, because in a case where an employee of the assessee was prosecuted it could not be said that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed to examine whether this finding is based on material or not, we must refer to another decision of the Supreme Court in the case of Commissioner of Income-tax v. Indian Mica Supply Co. P. Ltd., where the Supreme Court held : " It is well settled that it is a question of fact in each case whether the amount which is claimed as a deductible allowance under section 10(2)(xv) of the Income-tax Act, 1922, was laid out wholly and exclusively for the purpose of the assessee's business. If the fact-finding Tribunal comes to the conclusion on evidence that the expense incurred is wholly and exclusively for the purpose of the business, then the decision of the Tribunal cannot be disturbed, if there is evidence upon which it could arrive at such a conclusion. " Now, let us see what is the material in the instant case upon which the Tribunal has recorded the finding that the expenditure has not been incurred wholly and exclusively for the purposes of the business. The necessary material is contained in the order of the Tribunal passed on the appeal of the assessee for the assessment year 1951-52 and is as below : (1) That the accused persons were Mr. M. L. Bagla, secretary ; Mr. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee himself is prosecuted and the cases where his employees are implicated. In the former category of cases the expenditure cannot be allowed as a deduction because of the presence of the element of punishment which the assessee tries to avoid but in the second category of cases, there being no such element, the expenses can be said to be wholly and exclusively laid out for the purpose of the business. With respect, we cannot subscribe to this view. It must not be forgotten that in criminal proceedings a company not being a natural person cannot be prosecuted and sentenced to imprisonment. The prosecution can only be launched against its directors and officers. It cannot, therefore, be said that merely because the directors and the officers of the company had been prosecuted, there was no element of punishment which the company was trying to avoid. Secondly, as we have already stated above, the decisive factor in such cases is not as to who is prosecuted, the assessee or its employees, but what is the intention and the motive of the assessee in incurring expenses on a criminal litigation. Such intention and motive must be gathered from the facts of each case and the attending ..... X X X X Extracts X X X X X X X X Extracts X X X X
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