TMI Blog1970 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of pound 9,841-15-9 as representing the true and correct value of mild steel bars, did not use pound 840, out of that amount, for the purpose for which the foreign exchange had been acquired. The defence of the accused was that the foreign exchange had been utilised for the very purpose for which it had been acquired, namely, for remittance to Messrs. Ironside Ltd., London, who actually placed the order on a Japanese concern for the supply of the goods. The Chief Presidence Magistrate as per judgment dated December 14, 1957, held that foreign exchange acquired by the assessee-firm had been utilised for the purpose for which it had been acquired and no portion of it had remained unused. He, accordingly, acquitted the accused. The assessee-firm incurred an expenditure of Rs. 6,000 on the defence of Chaman Lal during the previous year ending on March 31, 1958, relevant to the assessment year 1958-59. The assessee-firm claimed that the expenditure of Rs. 6,000 should be deducted in computing its business income. The Income-tax Officer held that the said expenditure of Rs. 6,000 was not incidental to the assessee-firm's business and rejected the firm's claim. The assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the, assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." The controversy between the parties centers round the point as to whether the litigation expense of Rs. 6,000 constitutes an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee. In order to bring the expenditure within the ambit of the words " wholly and exclusively ", it would have to be shown that the expenditure in its entirety was laid out and expended for the purpose of the business of the assessee and for no other purpose. If part of the expenditure was laid out or expended for a purpose other than that mentioned in clause (xv) or if the purpose of the expenditure was not solely and exclusively the business, profession or vocation of the assessee, the expenditure would not attract the above clause. So far as expenses on civil litigation are concerned, the legal expenses incurred by an assessee to protect or safeguard his business inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable income, merely because the proceeding has failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively, i.e., reasonably and honestly incurred to promote the interest of the business. Persistence of the assessee in launching the proceeding and carrying it from court to court and incurring expenditure for that purpose again cannot be a ground for dissallowing the claim. It was further observed : " Under section 10(2)(xv) of the Indian Income-tax Act, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deduction. Expenditure on civil litigation commenced or carried on by an assessee for protecting the business is admissible as expenditure under section 10(2)(xv) provided other conditions are fulfilled, even though the expenditure does not directly relate to the earning of income. Expenditure incurred not with a view to the direct and immediate benefit for purposes of commercial expediency and in order indirectly to facilitate the carrying on of the business is, therefore, expenditure laid out wholly and exclusively for the purposes of the trade. " So far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 'expenditure laid out or expended wholly and exclusively for the purposes of the business'. Learned counsel for the respondent frankly admitted that he was not able to find a single case in the books where the expenses incurred by a person exercising a trade or profession in defending a criminal prosecution, which arises out of his business or professional activities, were allowed to be deducted in the assessment of his profits or gains for income-tax purposes. " Reference was then made in the above case to the decision of the Bombay High Court in the case of J. B. Advani Co. v. Commissioner of Income-tax, wherein a distinction had been drawn between legal expenses of a successful and unsuccessful defence, in a criminal case. Patanjali Sastri C.J. in this context observed : " Nor are we satisfied, as at present advised, that a distinction drawn in the Bombay case between the legal expenses of a successful and unsuccessful defence is sound. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to with approval by their Lordships of the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax. The assessee in that case was carrying on the business of importing dates from abroad and selling them in India. He imported dates from Iraq by a steamer at a time when import of dates was prohibited. The dates were confiscated and were released on the assessee paying fine under section 183 of the Sea Customs Act. The assessee sought to deduct the amount paid as fine as an allowable expenditure under section 10(2)(xv) of the Act. It was held that expenses paid by way of penalty for a breach of the law, even though it might involve no personal liability, was not an allowable deduction. Mr. Keshav Dayal, on behalf of the assessee, has tried to distinguish the above case on the ground that the breach of the law by the assessee in the above case was admitted, while in that present case the finding in the criminal case against Chaman Lal was that there had been no contravention of law. We agree with the learned counsel in this respect and our object in referring to the above case is only with a view to show that the decision in the case of Spofforth a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegation that the vegetable oil produced by the company did not contain 5% til oil as required by the order made under that Act. The company incurred an expenditure in defending the case and the officers were acquitted. On a claim made by the company to deduct the expenses under section 10(2)(xv) of the Act, it was held by a Division Bench of the Patna High Court that it was a permissible deduction. The learned judge dealt with the matter in the following words. " The prosecution was on the ground that those goods were below the standard and the company had to defend the quality of their product by defending themselves and their officers in that criminal case. Ultimately, they succeeded. In those circumstances, the only means of defending and protecting the goodwill and the quality of their goods was to defend themselves in the criminal proceeding. In that view of the matter, it cannot be said that one of the primary purposes for incurring the expenditure in that criminal case was not the protection of the quality of their manufactured goods from the assailment charge against them. Therefore, the expenses incurred will be deductible under section 10(2)(xv) of the Act. " ..... X X X X Extracts X X X X X X X X Extracts X X X X
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