MEENAKSHI MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question that is referred to this court under section 66 of the Indian Income-tax Act is as follows :

(2.) THE assessee is a limited company, incorporated under the Indian Companies Act carrying on business in cotton spinning and weaving at Madurai. In the accounting year relevant to the assessment year 1949-50 it claimed as deduction in the computation of its business profits the sum of Rs. 20,035 representing legal expenses incurred by it in connection with a litigation to the details of which we shall refer a little later. In the assessment year 1950-51, relevant to the previous year ending on March 31, 1950, it claimed as deduction the sum of Rs. 5,912 being the costs paid to the Government as a result of the said litigation. THE Income-tax Officer disallowed the claim in respect of both the years on the ground that the assessed failed to furnish detail of the expenses. THE assessee went up on appeal to the Appellate Assistant Commissioner who concurred with the decision of the Income-tax Officer. THE Appellate Assistant Commissioner found that the assessee infringed the provisions of a statute and improperly challenged the court proceedings, the validity of lawful orders passed in pursuance of a statute and that the expenses cannot be said to have been laid out wholly and exclusively for the purpose of the business. THEre was a further appeal to the Income-tax Appellate Tribunal by the assessee. THE Tribunal took the view that the expenses incurred by the assessee and sought to be deducted in the computation of profits were not in the course of business and were due to; a misapprehension of the assessee in respect of the application of a statute. THE result was that the Tribunal affirmed the decision of the department. THE question set out above stands referred by the Tribunal on an application made to it by the assessee.

(3.) THE main contention of the assessee was that the ground on which he filed the petition under section 45 of the Specific Relief Act, that the delivery of yarn to outside weavers was not transfer of property and was not therefore a sale, and that it was delivery by way of bailment and such delivery would not fall within the provisions of the Control Order.