COMMISSIONER OF INCOME-TAX Vs. SIR PURSHOTTAMDAS THAKURDAS

JUDGEMENT

(1.) This is a reference under Section 66(2) of the Indian Income-tax Act. The short question which the Tribunal has framed is as follows:- Whether, on the facts of the case, the legal expense of Rs. 7,500 incurred by the assessee in defending a suit brought to unseat him was rightly allowed as a deduction in computing his total income for the charge year 1940-41, under Section 12(2) of the Indian Income-tax (Amendment) Act, 1939

(2.) The facts can be shortly stated as set out in the case. Sir Purshottamdas Thakurdas, who is the assessee in this case, was a director of a number of limited companies in the year of account Samvat 1995. On November 12, 1935, he was elected a Member of the Local Board for the Western Area of the Reserve Bank of India, which office is ordinarily held for five years. Sometime after his election one Mr. P. D. Shamdasani brought a suit against him for a declaration that the election was invalid and that he himself should be declared duly elected. The suit was dismissed both in the first Court and in the Appeal Court. In defending the suit the assessee incurred a legal expense of Rs. 7,500 in the year of account These facts are undisputed.

(3.) The relevant section of the Indian Income-tax Act under which head directors fees come is Section 12 of the Act. Sub-section (2) provides: Such income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains,.. And then there is a proviso with regard to certain excluded matters.