TMI Blog1965 (1) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany which carried on transport business. The relevant accounting years ended on 31st of March, 1954, and 1955. There were 13 shareholders in the company. Towards the end of 1953, certain disputes arose which resulted in an application being made under section 153C of the Indian Companies Act of 1913, and in the appointment by the High Court of an interim administrator. The High Court also appointed Messrs. Suri Co., a firm of chartered accountants, to investigate into the affairs of the company for the period April 1, 1952, to June 30, 1953. In the course of these proceedings, the High Court directed the payment of ₹ 3,000 to the auditors towards their remuneration, and this sum was claimed as business expenditure in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal and an application by the assessee under section 66(1) failed. This court directed, under section 66(2) of the Act, the reference to this court of the question set out earlier. The petition filed in the High Court was under section 153C of the Indian Companies Act. This section enables any member of a company who complains that the affairs of the company have been conducted in a manner prejudicial to the interests of the company or in a manner oppressive to some part of the members, to make an application to the court for an order under the section. It is not in dispute that two of the shareholders of the company made such an application, and they alleged that the liabilities of the company amounted to nearly ₹ 2,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses have been incurred as a result of the orders of the court and further for the purpose of carrying on the business of the company, they are all allowable. It is claimed that if the petitioners moving the court under section 153C have to establish such grounds as would justify liquidation of the company, and if the company resist such a petition, it is really fighting for its existence, and that expenditure incurred for that purpose cannot be otherwise than one expended wholly and exclusively for the purpose of the business. In Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao [1955] 2 S.C.R. 1066; [1956] 26 Comp. Cas. 91 the scope of an application under section 153C was considered. Their Lordships pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut for the purpose of the company's trade. The House of Lords took the view that, since the object of the expenditure was to preserve the assets of the company from seizure and to enable it to carry on and earn profits, the expenditure could reasonably be held to be wholly and exclusively laid out for the purpose of the business. Learned counsel for the assessee purports to draw an analogy and claims that the application under section 153C could have successfully put an end to the life of the company and where the company was opposing such petition it was seeking to preserve its existence. On the other hand, it is the contention of the department that, in a proceeding under section 153C of the Act, an order for winding up is not one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. The present case does not, therefore, form a parallel to that in Morgan (Inspector of Taxes) v. Tate Lyle Ltd. [1954] 26 I.T.R. 195 (H.L.) and the expenditure cannot be regarded as having been expended wholly and exclusively for the purpose of the business on the basis of the principle of that decision. It seems to us, however, that certain items of expenditure are nevertheless allowable as normal business expenditure. The audit of the company directed by the court, though it arose in the context of the application under section 153C of the Act, was nevertheless one which could have been undertaken by the company itself in the normal course. Equally, it seems to us that the expenditure incurred in connection with the gener ..... X X X X Extracts X X X X X X X X Extracts X X X X
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