TMI Blog1941 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... oney spent by way of legal expenses in defending suit which was brought against the assessees in the Court of the Subordinate Judge at Purulia in Bihar. That suit arose out of a transaction which this firm along with one Kedarnath Daga had in the year 1921 with a firm called Siddons Co., Siddons Co., apparently consisted of Samuel Henry Siddons, who is described as a merchant, and Rasaraj Biswas, also described as a merchant. Siddons Co., took a lease sometime previous to 1921 from the Raja of Panchkote of certain coal bearing lands in Bihar. They granted prospecting licenses to certain persons and received therefore salami and were due to receive rents and royalties. Siddons Co., borrowed a sum of about rupees ten lacs from the assessees and Daga jointly, and in order to secure this loan Siddons Co., executed two documents on March 31, 1921. The first of these documents was in the nature of a mortgage deed in which the assessees and Daga were described as the mortgagees and Siddons Co., as the mortgagors. Siddons Co., purported to mortgage to the mortgagees a fourteen annas share of the net salami and royalty which was then payable or might thereafter become due a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he properties in question and the Raja claimed that the assessees and Daga were, under the deed of assignment of March 31, 1921, liable to pay rents and royalties which were due to him originally from Messrs. Siddons Co. The assessees apparently were the only effective defendants and they contested the matter in the Purulia Court with success. Their out of pocket costs in so contesting were extremely heavy and amounted to the sum previously mentioned, namely, ₹ 2,15,176. The assessees contended that this sum was deductible from the income, profits and gains under Section 10(2)(xi) of the Income Tax Act of 1922 in the assessment made on March 23, 1937, in respect of the previous year 1936-37. The Income Tax Officer, the Appellate Officer, and the Commissioner negatived this claim and the assessees thereupon applied to this Court for a Rule upon the Commissioner to state a case under Section 66(2). The Rule was granted and a case was stated. When the case came before this bench consisting then of Nasim Ali, J., and myself, we expressed surprise that the assessees as successful defendants in the Purulia case should have found it necessary to pay out of pocket costs amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acts. We have been referred to a case decided by the English Court to Appeal in 1939 - G. Scammell and Nephew Ltd. v. Rowles. (1940) 8 I.T.R. Suppl. 41. That was a case under Schedule D, Cases I and II, Rule 2, of the English Income Tax Act of 1918. That provision of law is : In computing the amount of the profits or gains to be charged, no sum shall be deduced in respect of : (a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation . There money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation covers a much wider field than the words in Section 10(2)(ix) of the Indian Income Tax Act, expenditure incurred solely for the purpose of earning such profits or gains . I cannot, therefore, accept the case of G. Scammell and Nephew Ltd. v. Rowles (1940) 8 I.T.R. Suppl. 41, as a guide in this particular case, much less as authority which could bind us. That was a case which was decided in favour of the assessee. We have also been referred to another case under similar provisions (Strong Company of Romsey Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle as part of the profits assessable to Income Tax. This aspects of the matter are clearly and forcibly set out in the contentions of the Company as embodied in the correspondence with the Commissioner contained in the case, but they raise questions which can only be dealt with appropriately by the Legislature. This Court, however, cannot be influenced by such considerations being concerned only with the interpretation and application of the law as it stands. Then Lord Cave went on : The expenditure in question was not necessary for the production of profit, nor was it in fact incurred for that purpose. It was a voluntary expense incurred with a view to influencing public opinion against taking a step which would have depreciated and partly destroyed the profit-bearing thing. The expense may have been wisely undertaken and may properly find a place either in the balance sheet or in the profit and loss account of the appellants; but this is not enough to take it out of the prohibition in Section 86, sub-section 1(a) of the Act. For that purpose it must have been incurred for the direct purpose of producing profits. The conclusion may appear to bear hardly upon the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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