TMI Blog1983 (7) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits under section 10(2)(xv) of the Indian Income-tax Act, 1922 ? The facts relevant for the purposes of these cases were stated by the Supreme Court in the case of the assessee in CIT v. McLeod and Co. Ltd. [1970] 78 ITR 22 (SC) and the same run as follows (at pages 22 and 23): " The matter arises thus : The respondent-assessee made a claim in its assessment for the assessment year 1952-53, inter alia, for an allowance of Rs. 95,868 as provision for extraordinary legal and other expenses in computing its profits for the purposes of income-tax. The Income-tax Officer disallowed that claim holding, inter alia, that the payments which were made to different firms of solicitors for legal advice in the matter of certain irregula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's plea that the expenses were incurred to protect the assessee's business as managing agents of various public companies and unless the fair name of the assessee was maintained, its business would have suffered and certain managing agencies would have been lost." The Commissioner of Income-tax thereupon applied to the Tribunal under section 66(1) of the Indian Income-tax Act, 1922, for case to be stated to the High Court for reference of the following two questions of law : " (1) Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the expenditure of Rs. 95,868 was wholly and exclusively incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the bills of M/s. Orr Dignam Co., the Tribunal perused the detailed statements of work done by M/s. Orr Dignam Co., in connection with straightening out of the affairs of the assessee-company. The Tribunal held that the expenditure had been incurred for the purpose of maintaining the goodwill and reputation of the assessee-company and that the expenditure had been wholly and exclusively incurred for this purpose.' The above throws no light on the nature of the work done by the named firm of solicitors. An elucidation was necessary to permit the court to take the view that there was evidence to justify the conclusion arrived at by the Tribunal. The real complaint of the appellant before us is that the statement of facts in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e." The facts and documents pertaining to the question and about the nature of the work done by Orr Dignam Co., in connection with straightening out of the affairs of the assessee-company are not before us. The Appellate Assistant Commissioner in his order has pointed out as follows : " It is represented that these expenses had been incurred in order to protect the appellant company's business as managing agents of public companies following allegation of irregular acts by some of its directors and officials whereby the funds of several companies under its management were depleted and which, in turn, adversely affected its own income from those companies for that year. It is further represented that reconstruction of its board of dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the goodwill and reputation of the assessee-company and the expenditure claimed is allowable as a proper revenue deduction." It appears from ground No. 3 that the payments were made against the bills of M/s. Orr Dignam Co., M/s. Sandersons and Morgans and M/s. Khaitan Co. It also appears that a report was made by the auditors about some irregularities in the accounting on December 12, 1952. Thereafter, one of the directors, Mr. A.J. Peppercorn, wrote a letter on April 17, 1952, explaining why he did not sign the directors' report and he pointed out that he pursued the irregularities that were pointed out by the auditors. It was stated in that letter, inter alia, as follows: " As a result of the investigations that I undertook, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Peppercorn in the letter dated April 17, 1952. The expenses pertaining to these irregularities and fictitious transactions will not be allowable as deductions wholly and exclusively incurred for the purpose of the companies business. The other expenses of the solicitors which were noted in the Appellate Assistant Commissioner's order, such as, expenses in connection with the appointment of the managing director or reconstruction of its board of directors, will have to be allowed. Therefore, these cases are disposed of with the direction to the Tribunal to ascertain the facts relating to these matters. It would be open to the parties to adduce further evidence on these points, if necessary. There will be no order as to costs. R. N. PYNE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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