COMMISSIONER OF INCOME TAX Vs. SHIWALIK TALKIES LIMITED

JUDGEMENT

(1.) THESE three income-tax references (I.T.Rs. Nos. 2, 3 and 5 of 1962) are being disposed of by the same judgment because they raise one common question, and indeed arguments have only been addressed in I.T.R. No. 5 of 1962, it being conceded at the Bar that the decision in this case would govern the other two cases as well.

(2.) THE learned counsel for the Commissioner of Income-tax had read out to us the statement of the case from the paper-book relating to I.T.R. No. 5 of 1962 arising out of the assessment of M/s. Shiwalik Talkies Ltd., Nangal Township, for the assessment year 1953-54. THE assessee is a private limited company and during the relevant accounting period ending March 31, 1953, there was litigation in the High Court among its directors. Some of the shareholders during that controversy filed an application under section 153C of the Indian Companies Act, 1913, questioning the appointment of some of the directors of the assessee-company. It is observed in the statement of the case that the learned counsel for assessee attempted to point out to the Income-tax Appellate Tribunal (Delhi Bench "B") that an application for appointment of a receiver had also been field in the main petition, but the Tribunal found nothing on its records on which this assertion could be upheld. At the same time, that Tribunal considered it relevant to point out that there were certain observations in its own earlier order suggesting the existence of prayer for the appointment of receiver. In this application in the High Court, the contesting parties effected a compromise agreement in 1954. In the assessment proceedings in question, a sum of Rs. 551 was claimed as legal fees which included a sum of Rs, 250 stated to have been paid to Shri K. C. Malhotra as his consultation fee in connection with the aforesaid litigation. This amount was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner confirmed this order. Appeals from the three assessment years 1953-54, 1954-55 and 1955-56 were preferred by the assessee with the Appellate Tribunal which by a common order dated March 28, 1957, allowed all the three appeals with the observation that there could be no doubt that, if the receiver had been appointed, the smooth running of the company would have been affected and the company would not have been able to make profits or gains. It is in these circumstances that in pursuance of this courts order dated January 31, 1961, a statement of the case was drawn up and forward to this court by the Appellate Tribunal, the question of law referred being :

(3.) THE court then considered Indian decisions and recorded its final conclusion which has already been noticed a little earlier. At this stage, I may notice decision of the Bombay High Court in All India Reporter Ltd. v. Commissioner of Income-tax, in which a Division Bench held that the expenditure incurred by company in defending itself in a petition field by a shareholder for winding up the company is expenditure which enables the company to continue to run and earn profits from business and as such is an expenditure incurred wholly and exclusively for purposes of business deductible under section 10(2)(xv).