TMI Blog1971 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... including a mill for the manufacture of vanaspati oil. During the previous year ending 30th June, 1951, the Vanaspati Manufacturers' Association, Bombay, of which the assessee is a member, debited the assessee with a total sum of Rs. 22,851. This amount represented the assessee's share of propaganda expenses incurred by the association. The letter sent by the Association intimated to the assessee that the expenditure was not on research but on propaganda to counter the agitation against the industry for compulsory colourisation of vanaspati oil or for the imposition of a ban on the manufacture of vanaspati itself. The letter, however, stated that had the agitation against the industry been allowed to go on unopposed, the industry would have been ruined. This amount was in addition to the expenditure incurred by the Association on research, by contributions to the Council of Scientific and Industrial Research which was an approved scientific research institute. In con section with the assessment for the relevant year the Income-tax Officer disallowed, inter alia, the assessee's claim with the observation that the amount represented the assessee's share for expenses on research, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to be made by some body to which the assessee had contributed its share of expenditure. On the other hand, the carrying on of vanaspati business was not hampered at all by any order of the Government. The Tribunal, therefore, held that the expenditure in question was not an admissible deduction. At the instance of the assessee, the question of law mentioned above has been referred to this court. At the very outset it may be stated that the Tribunal's approach to the problem does not appear to us to be correct. While relying on a decision of the House of Lords in Morgan v. Tate Lyle Ltd. and a decision of the Bombay High Court in All India Reporter Ltd. v. Commissioner of Income-tax and some other cases which have not been cited in the judgment, the Tribunal has observed that the cases cited on behalf of the assessee relate to expenditure incurred for the purpose of saving the business from extinction. In the present case, however, it is not as if the assessee would have had to wind up its business in vanaspati for which propaganda had to be made by some body. On the other band, the carrying on of vanaspati business was not hampered at all by any order of the Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's profit-earning assets. Lord Morton even went to the extent of observing that in W. Nevill Co. Ltd. v. Federal Commissioner of Taxation, the High Court of Australia had arrived at the same conclusion on similar facts when construing the narrower wording of section 25(e) of the Income Tax Assessment Act, 1922-32, "wholly and exclusively laid out or expended for the production of assessable income." The case of Southern v. Borax Consolidated Ltd. is the other case cited in that judgment. There the company was in danger of losing a valuable asset, not by confiscation, but by legal proceedings attacking the company's title to that asset. Lawrence J. held that the expense of resisting those proceedings was deductible, and said : " It appears to me that the legal expenses which were incurred by the respondent-company did not create any asset at all, but were expenses which were incurred in the ordinary course of maintaining the assets of the company and the fact that it was maintaining the title and not the value of the company's business does not, in my opinion, make it any different." The above decision was approved by the Court of Appeal in Associated Portland Cement Manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is true that the Government had not passed any order but if the Bill had been allowed to become a law the threat would have been real. As there was lot of agitation in favour of the Bill, it was circulated for eliciting public opinion and it transpired that one of the ways was not to impose a total ban on the manufacture of vanaspati ghee but also to make a provision for compulsory colourisation of vanaspati. That would have impaired the trade, although there would have been no complete ban on its manufacture and sale. In Order to preserve the status and reputation of vanaspati ghee industry if propaganda had to be carried on it cannot be said that the expenditure of money was not exclusively laid out for the business of the company. Counsel for the revenue cited several cases which may now be noticed. The case of Joseph L, Thompson Soots Ltd. v. Chamberlain is one on which strong reliance was placed by the learned counsel. The appellant company which carried on business as ship-builders was a member of a trade association for the protection of the general well being of the ship-building industry. The association, with the company's approval, made annual contributions to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey were expenses incurred by the wisdom of the directors but they did not enure to secure a part of the trade as being carried on, but to supply a deficiency at a time when there was no trade being carried on. The case has therefore very little bearing on the question before us. Counsel for the revenue then cited certain cases relating to litigation expenses incurred by the assessees in those cases. In Lochgelly Iron Coal Co. Ltd. v. Crawford the company which was a member of the Coal Owners' Association claimed allowance for certain contributions representing levies made by the association and expended : (1) in defraying expenses of the conciliation board, (2) in paying subscriptions to the Mining Association of Great Britain, and (3) in experimenting with coal dust. The Court of Session in Scotland held that so far as the levies were applied in defraying the expenses of the Conciliation Board they were an admissible deduction in arriving at the liability of the company but so far as they applied to the other two purposes they were not admissible. It was urged by the learned counsel for the revenue before us that if subscriptions to the Mining Association of Great Britain an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. It was held by the Supreme Court that expenditure incurred to resist in a civil proceeding the enforcement of a measure, legislative or executive, which imposes restric tions on the carrying on of a business, or to obtain a declaration that the measure is invalid, would, if other conditions are satisfied, be admissible as a deduction under section 10(2)(xv) In order that an expenditure may be admissible as a deduction under section 10(2)(xv) it is not necessary that the primary motive in incurring it must be directly to earn income thereby. The case of Cooper v. Rhymney Breweries Ltd. is another case which illustrates that the expenditure incurred by an assessee will be allowable if it is incidental to the carrying on of the company's business. The respondent company, which carried on a brewery business, owned 680 tied houses in Wales and Monmouthshire. Prior to the passing of the Licensing Act, 1961 (which allowed the question of Sunday opening to be decided by a poll in each county and county borough), licensed public houses had not been permitted to open on Sundays in Wales since 1881 nor in Monmouth shire since 1915. The company and its predecessors had kept up a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. " To the same effect are the observations of the Supreme Court in another case Sree Meenakski Mills Ltd. v. Commissioner of Income-tax where the Supreme Court went a step forward and observed : " 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. " In the present case, there can be no doubt that the expenditure on propaganda was incurred by the assessee-company not only with a view to the direct and immediate benefit for purposes of commercial expediency but also indirectly to facilitate the carrying on of the business. Such expenditure can, in the words of the Supreme Court, be obviously said to have been laid out wholly and exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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