TMI Blog1965 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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 filed 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 a prayer for the appointment of a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) in a manner prejudicial to the interests of the company, or (b) in a manner oppressive to some part of the members (including himself) may make an application to the court for an order under this section. (2) An application under sub-section (1) may also be made by the Central Government if it is satisfied that the affairs of the company are being conducted as aforesaid. (3) No application under sub-section (1) shall be made by any member, unless-- (a) In the case of a company having a share capital, the member complaining-- (i) has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than one-tenth in number of the members, whichever is less, or (ii) holds not less than one-tenth of the issued share capital of the company upon which all calls and other sums due have been paid ; and (b) in the case of a company not having a share capital, the member complaining has obtained the consent in writing of not less than one-fifth in number of the members.... (4) If on any such application the court is of opinion-- (a) that the company's affairs are being conducted as aforesaid, and (b) that to wind up the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly made by a resolution of the company, and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly.... (8) It shall be lawful for the court upon the application of any petitioner or of any respondent to a petition under this section and upon such terms as to the court appears just and equitable, to make any such interim order as it thinks fit for regulating the conduct of the affairs of the company pending the making of a final order in relation to the application. (9) Where any manager, managing agent, managing director or any other director or any other person who has not been impleaded as a respondent to any application under this section applies to be made a party thereto, the court shall, if it is satisfied that his presence before the court is necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the application, direct that the name of any such person be added to the application. (10) In any case in which the court makes an order terminating any agreement between the company and its manager, managing agent or managing director or any of its other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of themselves and of their controlled companies not to enter into any pooling or price arrangements with third parties which may be inimical to their interests under the agreement. There were some other provisions which need not be detailed here. In 1913, a supplemental agreement was entered into between the parties reciting that the Dutch company had acquired rights in a process for hardening oils and that the parties were desirous of formulating a scheme for the merger of their assets or the unification of their financial and commercial interests, etc., but that such a scheme could not at that time be fully elaborated to their satisfaction, and that it was desirable to regulate their mutual relations and modify and extend the principal agreement in the manner specified. According to the case stated by the Commissioners for the General Purposes of the Income Tax for the City of London, each company carried on its business independently but, in general, they observed the terms of their agreements during 1908 to 1913 and their profits were accounted for for these years. Payments made to the Dutch company were deducted as an expense and when made by the Dutch company were brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to those with which we are concerned. Both sides have referred to some of the decisions noticed by Lord Macmillan at page 430 of the report, but I am far from satisfied that any one of those decisions are of any direct assistance in solving the problem before us. The question posed by Lord Macmillan was whether the sum received by the assessee in the circumstances narrrated in the reported case could properly be described as an item of profit arising or accruing from the carrying on of their trade which ought to be credited as an income receipt. Clearly, to find an answer to that question, would involve consideration of aspects very much different from those which confront us. In Morgan v. Tate Lyle Ltd. the assessee-company was carrying on sugar refining business in Britain. It refined roughly 53 per cent. of all the sugar refined in the country. During the years immediately following the political changes in Britain in 1945, the directors of the assessee-company became increasingly concerned by reason of the Labour Government's inclination towards nationalisation of sugar industry. In 1949, the election manifesto of the Labour Party in this connection gathered great moment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court were undoubtedly not quite identical with those before us, but the discussion is illuminating and authoritative, and the appraisal of the English decisions contained there is fully binding on this court. In the reported case, certain amounts were paid by way of estate duty under section 84 of the Estate Duty Act, 1953 (before amendment in 1958), by a resident company incorporated outside India on the death of the shareholders not domiciled in India. This amount was claimed as lawful deduction under section 10(2)(xv) Indian Income-tax Act, 1922, and the Supreme Court, repelling this claim, held that, although the amounts paid were " expenditure ", they were not allowable under section 10(2)(xv) as business expenditure because the payments were not " for the purpose of the business ". The payments had nothing to do with the conduct of its business, and the obligation of the company to pay estate duty was a statutory duty connected with the business, though the occasion for the imposition arose because of territorial nexus afforded by the accident of its doing business in India. It was also observed that the expression " for the purpose of the business is wider in scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred in resisting an application by shareholders of the assessee-company under section 153C of the Indian Companies Act, questioning the appointment of some of the directors of the assessee-company, cannot be considered to be an expenditure laid out or expended wholly and exclusively for the purpose, of the business of the company. Whether a particular director has been guilty of conduct which is objectionable, or whether the affairs of the company are being conducted by those entrusted by the shareholders to conduct them, in a manner prejudicial to the interests of the company, is a matter which may remotely and in part be considered to relate to the purpose of the company's business, but I am extremely doubtful if it can be safely said that expenditure so laid out or expended on defending the conduct of the directors or of the company questioned by the shareholders can be said to be wholly and exclusively expended or laid out for the purposes of its business. The expression "wholly and exclusively" appear to restrict and limit the operation of the clause. The decision of the Appellate Tribunal seems to me to be somewhat sketchy and I do not feel impressed by the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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