LACHMINARAYAN MODI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS case was first heard by a Division Bench of this Court on the 16th July, 1952, which after discussing the various question of law that were involved in the reference made by the Tribunal under S. 66(1) of the Indian IT Act, directed the Tribunal to send a further statement of all the relevant facts for the purpose of enabling it to give a clear answer to the questions formulated in the original reference. The Tribunal has submitted a supplementary statement of facts along with the report of the AAC, on remand, and we have heard the counsel for both sides not only on the new question that arose out of the additional statements submitted by the Tribunal but also on the main questions of law which have been fully dealt with in the previous judgment of this Bench.

(2.) FOR the purpose of appreciating the various points involved the relevant facts may be recapitulated as follows : One Lachminarayan Modi was carrying on a partnership business with his four separated brothers with head office at Cuttack and branch offices at Ichhapur, Ganjam and other place. One of the important businesses carried on by the partnership firm was the manufacture of salt at Ganjam and Sumadi. Due to some differences amongst the partners the said Lachminarayan instituted a suit (Suit No. 6 of 1941) for dissolution of partnership and for other reliefs in the Court of the Subordinate Judge and prayed in the plaint itself for appointment of a receiver. The receivership matter was disposed of by the Subordinate Judge by his order dt. 7th April, 1941, in which after appointing an advocate of Cuttack (Sri P. Mohanty) as receiver he gave the following directions :

(3.) IN pursuance of this order the receiver carried on the salt business at both the said places and out of the total profits realised, a sum of Rs. 13,254 was paid to Lachminarayan Modi as his share of the income for the year 1st Jan., 1943 to 31st Dec., 1943. When Lachminarayan Modi was assessed to income tax in respect of that income during the asst. year 1944 45 he claimed a reduction of Rs. 5,370 as legal expenses incurred by him in connection with the said partnership suit and urged that it was a permissible deduction under S. 10(2)(xv) of the Indian IT Act inasmuch as the sum was "expended wholly and exclusively for the purpose of his business". The fact that the said sum was incurred for the legal expenses in connection with the partnership suit was not challenged by the IT Department. In fact, in the original statement of the case by the Tribunal it was noted that there was no dispute about the correctness of the figure of Rs. 5,371. In the supplementary statement of the case, however, the AAC has attempted to cast some doubts on the correctness of the figure, especially as regards the purpose for which some of the items of expenditure were incurred. In our opinion, it is no longer open to the Department to challenge the correctness of the figure in view of the first statement of the case by the Tribunal which has concluded this question of fact. We would, therefore, take it as well established that for the year in question the assessee had spent Rs. 5,371 towards the legal expenses in connection with the dissolution of the partnership suit pending in the Subordinate Judge's Court.