TMI Blog1974 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... "), in compliance with the direction of this court under section 66(2) of the Indian Income-tax Act, 1922 (hereinafter called as " the Act ") : " 1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 5,256 deducted by Ails. Iron Steel Stockists (Civil Supplies) Association, Delhi, is a proper deduction from the business income of the ' assessee as business loss, bad debt or business expense ? 2. Whether legal expenses of Rs. 550 incurred by the assessee in defending a suit filed by its former managing director for a declaration that his removal was illegal and he continued as the managing director were admissible deduction from business income? 3. Whether the law charges of Rs. 825 and Rs. 385 incurred by the assessee-company in connection with criminal complaints against the former managing director for misappropriation of company's funds and efforts to take forcible possession of company's business premises, respectively, are a permissible deduction from business profits of the assesseec company ? " The facts which are relevant to the first question, which can be gathered from the statement of the case and the supplementary statement of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the assessee has raised two contentions in support of the assessee's claim for the deduction of the amount of Rs. 5,256, namely: (i) that the amount of Rs. 77,506 which was contributed by the assessee to the association represented the purchase price paid in advance of the stock-in-trade of the assessee's business and the sum of Rs. 5,256 being a portion of the purchase price of the stock-in-trade which was not returned to the assessee was in the nature of revenue expenditure; and (ii) that the amount of Rs. 77,506 was an expenditure incurred by the assessee for preserving its business and the amount claimed by the assessee being a portion of the said expenditure was an allowable deduction. We have to consider these contentions in the light of the material placed before us in the form of the annexures to the supplementary statement of the case. Annexure " E " to the supplementary statement of the case is a copy of the proceedings of a meeting of the " A " and " B " class registered stock holders of iron and steel held on March 11, 1947, under the presidentship of the Deputy Director of Civil Supplies. In this meeting the following decisions were taken : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn by the Civil Sapplies Department on the Iron and Steel Stockists (Civil Supplies) Association which would then issue their own permits on the various registered stockholders. The registered stockholders shall be asked by the department to submit their fortnightly returns to the Iron and Steel Stockists (Civil Supplies) Association and not to the department. The association will in turn send in a consolidated form to the department. Annexure " I " is the copy of the balance-sheet of the association as on 30th November, 1949. This is reproduced below : " Tele. 26994. Chandni Chowk, Suresh C. Mathur Co., (Above Mercantile Bank Ltd.), Chartered Accountants. Delhi. Dated 19th March, 1955. The Iron and Steel Stockists (C. S.) Association, Delhi. Balance Sheet as at 30th November, 1949. LIABILITIES Rs. ASSET'S Rs. Deposit from members 5,90,000-0-0 Advance for goods: (as per list) Office commanding S. D. C. Harbanspura 8,39,326-6-0 Loans payable : Other advances : Laxmi Iron and Steel Mfg. 54,959-12-6 Delhi Iron Steel Stockists Co. Ltd., (C. S.) Association Ltd. 6,339-8-0 Profit and Loss A/C Pt. Bhondumal Nihal Chand 11,052-14-6 Loss up to Nov., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment authorities. It is only association which deals with him. Annexure " D " itself does not show that the entire amount of Rs. 77,500 which was paid by the assessee to the association represented either the price of the stock-in-trade or the assessee's share capital in the association. The assessee appears to have paid Rs. 22,500 to the association on 20th May, 1947, and another sum of Rs. 22,500 on 31st August, 1947. These two amounts may very well represent the assessee's contribution towards the capital of the association. Then it is only on 31st March, 1955, that a further amount of Rs. 22,500 was paid by the assessee to the association. This amount cannot obviously represent the price of the stock-in-trade because by that date, it was known that by reason of the partition of the country, the Government was not in a position to sell the disposal goods to the association. It is, therefore, not clear what this amount of Rs. 22,500 paid by the assessee on March 31, 1955, actually represented. Then on January 16, 1957, the assessee received a sum of Rs. 72,244 from the association. This would mean that whatever was paid by the assessee to the association either as share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n referred to us is, therefore, answered in the negative, i.e., against the revenue and in favour of the assessee. The subject-matter of the third question consists of two amounts, namely, (1) Rs. 825, and (2) Rs. 385, representing the expenditure incurred by the assessee-company in connection with the criminal complaint filed by the assessee-company against the former managing director, Shri Shiv Saran Lal. The claim for the allowance of this expenditure was also disallowed by the income-tax authorities as well as by the Tribunal on the ground that the criminal complaint had no connection with the carrying on of the business of the company and arose out of the personal ill-feelings between the former managing director and the present directors of the assessee-company. Annexure " L " is the copy of the resolution of the board of directors of the assessee-company passed on February 2, 1956. From this resolution, it would appear that it was brought to the notice of the directors of the assessee-company that an amount of Rs. 5,000 had been withdrawn from the account of the assessee-company with the Punjab National Bank Ltd., Kanpur, on October 1, 1955, through the branch manager of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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