TMI Blog1954 (9) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... to the questions formulated in the original reference. The Tribunal has submitted a supplementary statement of facts along with the report of the Appellate Assistant Commissioner, 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 places. One of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be practically impossible to realise the money from the labourers unless the business was carried on and the labourers were directed to contribute by their labour towards repayment of the sum. (ii) As regards Sumadi factory, the business had come to a standstill on account of a dispute amongst the partners and the continuance of the deadlock would cause great loss to the firm. The re-starting of the business was held to be necessary for winding up of the business and, moreover, the firm had taken lease of the Sumadi factory from the Government for a limited period which would expire in 1942. Hence, the Subordinate judge thought that if the firm stopped its business it would forfeit the lease and incur great loss in payment of rent, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partnership suit was not challenged by the Income-tax Department. In fact, in the original statement of the case of the Tribunal it was noted that there was no dispute about the correctness of the figure of ₹ 5,371. In the supplementary statement of the case, however, the Appellate Assistant Commissioner 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 quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed mainly with the expenditure incurred in connection with a criminal case. But the aforesaid observation in respect of civil litigation was accepted as correct by the previous Bench of this Court and it was held that the test to apply in considering whether the deduction was permissible or not was whether by that litigation the asset of the business was protected or safeguarded. There was a further question as to whether the expenditure in confection with such litigation was capital expenditure or revenue expenditure and for a decision of this point the previous Bench relied on Mahabir Prasad Sons v. Commissioner of Income-tax [1945] 13 I.T.R. 340, where it was held that the test to be applied in determining whether litigation expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary or secondary purpose for which the legal expenses could be said to have been incurred as in the case of a criminal prosecution. In the end they said the deductibility of such expenses under section 10(2)(xv) must depend on the nature and purpose of the legal proceeding in relation to the business whose profits are under computation and cannot be affected by the final outcome of that proceeding. Mr. Das referred to an English decision reported in the Supplement to 1949 Income Tax Reports (Smith's Potato Estates Ltd. v. Bolland [1949] 17 I.T.R. Suppl. 1 in support of his contention that legal expenses for prosecuting an appeal in the Board of Referees against a decision of the Inland Revenue Commissioners were not an expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inting the Receiver which is quoted in the report of the Appellate Assistant Commissioner it is also clear that the main object in appointing the Receiver was to protect the assets of the firm during the transitional period. Hence, it will not be unreasonable to say that one of the purposes of the suit was to secure the appointment of a Receiver so as to protect the assets of the firm during the transitional period. It is true that the main purpose of the suit was to bring about dissolution of the partnership and for other consequential reliefs. But the protection of the assets of the firm by the appointment of a Receiver was also one of the purposes and as pointed out by their Lordships of the Supreme Court in Commissioner of Income-tax, W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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