TMI Blog1956 (10) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport Company v. Tirunelveli Motor Bus Company [1955] 2 M.L.J. 141. The accounting year of the assessee was the calendar year. In 1946 the assessee spent sums totalling ₹ 2,510-13-4 and ₹ 2,901 to meet the charges of litigation. ₹ 2,510-13-4 was made up of three heads: ₹ 108-4-0 spent for O.S. No. 307 of 1945; ₹ 28 spent for conducting the proceedings in a claim petition in proceedings in execution of the decree in O.S. No. 31 of 1940, and ₹ 2,374-9-4 spent in conducting O.S. No. 35 of 1945. In the same year the assessee expended ₹ 2,901 for conducting O.S. No. 80 of 1946, but these charges the assessee carried forward to the next accounting period when making up the profit and loss statement for 1946. This sum and the further sums expended in 1947 for conducting O.S. No. 80 of 1946 totalled ₹ 4,994-8-0. In the assessment year 1947-48 the assessee claimed ₹ 2,510-13-4 as a permissible deduction under section 10(2)(xv) of the Income-tax Act. The claim in the assessment year 1948-49 was for ₹ 4,994-8-0. These claims were disallowed by the Income-tax Officer. On appeal the Appellate Assistant Commissioner allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y so with respect, these passages give a correct picture of the scope of the two suits. At pages 144-45 of the report the learned Judge recorded: ......The plaintiff (assessee) instituted on 20th April, 1945, Original Suit No. 35 of 1945 on the file of the Sub-Court, Tirunelveli, against the defendant for a declaration of the plaintiff's title to 410 fully paid-up shares in the defendant-company and for a decree against the defendant for a sum of ₹ 3,054-8-0 being the dividend together with interest at six per cent. per annum. The main defence of the defendant in that suit was that the buses were sold for a sum of ₹ 41,000 and the amount received by Natesa Ayyar (the managing director of the assessee company) (as loan) was not really a loan but represented the sale price of the vehicles with the routes, that the certificates in respect of the additional 410 shares was a forgery and was fabricated by the managing director of the plaintiff-company, Natesa Ayyar, and the managing director of the defendant-company without the knowledge and consent of the other directors of the company. There was no application for the allotment of shares to the board of directors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been so understood both in the Court below and also in the argument before us. As a result of the existence of this contract, and its breach by the defendant, the plaintiff claims that he is entitled to enforce specific performance, or, in the alternative, to claim damages for its breach. If the contract is treated as having been rescinded, he claims that he is entitled to restitution for the benefits which the defendant derived under the contract as it is a proved fact that the plaintiff, in pursuance of the arrangement, not only delivered the buses but also concurred in the transfer of the routes and the buses to the defendant by joining in an application which was made to the Road Traffic Board. This passage sets out the scope of the two alternative reliefs the assessee asked for in O.S. No. 80 of 1946. One was for specific performance of the agreement between the assessee and the Tirunelveli Motor Bus Service Company to allot 410 shares to the assessee company in the Tirunelveli Motor Bus Service Company. The alternative relief asked for was based on the plea that that contract had been rescinded, in which case the assessee's claim would be one based on his origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something in the suit which has to cure a defective title, whether he ultimately succeeds or fails in that suit, the expenditure in such a suit would be of a capital nature. It would be expenditure incurred to acquire a capital asset, among other things, by curing a defect in title. It is from that point of view we have to consider the claim of the assessee in the proceedings before us. From what we have set out above it should be clear that what the assessee claimed in good faith in O.S. No. 35 of 1945, was, that it had acquired title to 410 shares in Tirunelveli Motor Bus Service Company. If that claim had been upheld by the Court, it would certainly have been a recognition of a pre-existing title. The decree in the suit itself would not add anything to that title. It could only have been a recognition of and preservation of the title that the assessee asserted. That the assessee failed did not alter the nature of the claim. The suit was one to maintain a title asserted, title to an item of the capital assets of the assessee company. That the fourteen buses with their route rights which the assessee owned constituted a part of the capital assets could not be in doubt. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief on the basis, that the contract of 1942 stood rescinded and that the assessee company all along retained the title to the fourteen buses which it had transferred with their route rights to the Tirunelveli Motor Bus Service. The second of the claims we have mentioned above was obviously to maintain a title asserted to an item of the capital assets of the assessee's business. If that claim succeeded, it was a pre-existing title that the Court could have recognised. The assessee did not call upon the Court to cure any defect in that title, or to supplement that title which the assessee asserted to the fourteen buses which it had owned. Had that been the only relief the assessee had asked for in O.S. No. 80 of 1946, the expenses incurred in maintaining that claim of title would have come within the scope of section 10(2)(xv) of the Act. It should be equally clear that, if the only relief the assessee had asked for in O.S. No. 80 of 1946 was the specific performance of the agreement of 1942, the claim of the assessee in the suit would have been to acquire title to a capital asset of 410 shares. There was no pre-existing title. There was only an executory contract. The cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the books of the assessee. But it is not possible to verify how much of it was spent for maintaining the claim of title and how much for obtaining the alternative relief of specific performance of the agreement. It is with reference to these facts that we have to decide whether any portion of the money expended in conducting O.S. No. 80 of 1946 would fall within the scope of section 10(2)(xv) of the Act. In Simon's Income Tax, Second edition, Volume II, page 211, paragraph 233-F, the learned authors observed: In Lochgelly Iron and Coal Company Limited v. I.R. Commissioners [1912-13] 6 Tax Cas. 67, the company paid a levy to an association of coal-owners and the association spent its levies on a variety of objects. The Court held that the association's computations should be analysed, and the portion of the company's levy, corresponding to the allowable portion of the association's total levy, could be deducted by the company. If that principle applies, and in our opinion it should, ₹ 2,324-14-0 expended towards payment of court-fees to maintain the claim of title to the fourteen buses which the assessee asserted in O.S. No. 80 of 1946 const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s solely and exclusively incurred for the business. The learned counsel for the assessee referred to Lachminarayan Modi v. Commissioner of Income-tax [1955] 28 I.T.R. 322 where the learned Judges of the Orissa High Court applied the principle the Supreme Court laid down in Commissioner of Income-tax v. H. Hirjee [1953] 23 I.T.R. 427 and held that no distinction could be made between a primary and secondary purpose for which expenses were incurred in civil litigation, and allowed the whole of the claim. With all respect to the learned Judges, we are not quite sure whether the principle laid down in Commissioner of Income-tax v. H. Hirjee [1953] 23 I.T.R. 427 was correctly applied. But it is not necessary for us to express any final opinion on that to dispose of the assessee's claim before us. In our opinion the expenditure of ₹ 2,324-14-0 incurred in O.S. No. 80 of 1946 to maintain the assessee's claim of title to the fourteen buses and their route rights is allowable under section 10(2)(xv) of the Act. Our answer to the question is, that the whole of the amount of ₹ 2,374-9-4 claimed as deduction in the year of assessment 1947-48 and ₹ 2,324-14-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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