BINODI RAM BALCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under Section 66 (1) of the Indian Income -tax Act 1922, at the instance of the assessee, the question for decision as propounded by the tribunal is -

(2.) DURING the assessment proceedings for the assessment year 1953 -54, the assessee, M/s. Binodiram Balchand, Indore, claimed to deduct a sum of Rs. 14,000/ - on account of fees paid to an income -tax adviser engaged in connection with and for the conduct of assessment proceedings before the Income -fax Officer. The deduction was disallowed by the Income -tax Officer on the ground that the payment said to have been made related to four accounting years. The assessee then preferred an appeal before the Appellate Assistant Commissioner, who disagreed with the view taken by the Income -tax Officer that the payment related to four accounting years. According to the Appellate Assistant Commissioner, the bill for the services rendered was sent by the income -tax adviser on 1st August 1952 which fell in the material year of account and the liability of the assessee to pay the amount of the bill arose on that date inasmuch as the accounts were maintained by the assessee on mercantile basis. The Appellate Assistant Commissioner, however, rejected the claim for deduction on the view that the amount of fees paid to the adviser was an amount for ascertaining and disputing the tax liability before the income -tax authority and was not any sum expended wholly and exclusively for the purpose of the assessee's business, that is to say, for the purpose of enabling the assessee to carry on, and earn profits in, the business. The Appellate Assistant Commissioner relied on the decision of the House of Lords in Smith's Potato Estates, Ltd. v. Balland, : [1949]17ITR1(Mad) . The assessee then went up in appeal before the Income -tax Tribunal, Bombay. The Tribunal upheld the view taken by the Appellate Assistant Commissioner.

(3.) IN reply, learned Advocate General appearing for the Department contended that the expression 'for the purpose of such business, profession or vocation' used in Clause (xv) of Section 10 (2) connoted that the expenditure sought to be deducted must have been one incurred by the assessee for enabling him to carry on, and earn profits in, his business; and that it was not sufficient to show that the expenditure was incurred in the course of business but that it must also be shown that it was incurred for the purpose of earning the profits. Learned Advocate General commended to us for acceptance the view taken by the majority in : [1949]17ITR1(Mad) . He also drew our attention to the decision of the Bombay High Court in S.D. Sharma v. Commr. of Income -tax : [1962]45ITR107(Bom) , where, following the judgment of the majority in : [1949]17ITR1(Mad) , it has been held that expenses incurred for the preparation of statements and accounts for tax purposes and expenses incurred in the engagement of a consultant for satisfying the tax authorities with regard to the said statements and accounts are expenses incurred for the purpose of ascertaining the tax liability and not for the purpose of carrying on the business or for earning profits, and such expenses cannot be allowed as business expenditure.