TMI Blog1981 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... the following three sums: (a) Rs. 11,214-legal expenses in connection with a suit filed by the assessee against one Barjoria; (b) Rs. 25,599-legal expenses in connection with suit No. 120/57 filed by the assessee against the other partners of the firms of Sarupchand Prithviraj and Juharmal Sarupchand; (c) Rs. 2,080 in connection with sundry items. The ITO allowed as revenue expenditure expenses under item Nos. (a) and (c) above, but disallowed item No. (b), viz., Rs. 25,599 on the ground that the said legal expenses were not incurred for the purpose of business. Against the said order of the ITO, amongst others rejecting the assessee's said claim of Rs. 25,599, the assessee filed an appeal to the AAC. The AAC by his order dated 27th November, 1964, inter alia, confirmed the order of the ITO disallowing the assessee's said claim. Against the said order of the AAC, the assessee appealed to the Tribunal. The Tribunal found from the material on record that the assessee had gained substantially by filing the suit and had obtained a far higher amount as his share of the partnership property and assets than he would have otherwise got and that the said legal expenses wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firstly, pointed out that the assessee's said suit was not only for dissolution and accounts. Apart from the fact that it also asked for the appointment of a receiver for the assets of the firms, it was of a complex nature involving other questions based on the allegation, against the other partners, of mismanagement of the firms, misappropriation and fraudulent secret transfer of the assets of the firms and breach of certain settlement between the partners. Therefore, the suit was also for retrieving and protecting the assets of the firm. He also pointed out that the Tribunal had found as a fact that by filing the suit the assessee had got a far higher amount as his share in the partnerships than he would have otherwise got. He, therefore, contended that the said legal expenses incurred by the assessee would fall within the provisions of s. 10(2)(xv) as an allowable deduction in computing their (HUF) business income. To appreciate the rival contentions, it would be first necessary to look into the facts and circumstances of the case, in particular, the nature of the assessee's suit. The assessee, HUF, were partners in two firms called Sarupchand Prithviraj and Juharmal Sarup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ex. J). The compilation containing the aforesaid documents only was taken on the file and marked annex. D. Certain other documents marked in the compilation as Exs. E and H collectively were not, however, taken on the file as not being relevant. Scrutiny of the plaint and proceedings shows that the Purpose of filing the suit was not simply to seek accounts and dissolution of the firms and getting the partners' shares ascertained and paid. It contains along with the allegation of mismanagement of the business of the firms, several allegations of misappropriation (paras 11 and 12 of the plaint) and fraudulent transfers of the firms' assets by the other group of partners in the management of the firms, of making secret profits (paras 13 and 14 of the plaint) and allegation of breach of the agreement of 1943 (paras 10 and 11 of the plaint) and of setting up their ownership to the assets of the firms (paras 8 and 10 of the plaint). The written statement of defendants Nos. 1 to 6, i.e., partners belonging to the other group, though generally admitting the assets of the firms, as stated by the plaintiff, have made similar allegations of misappropriation against the partners of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to settle the disputes between the partners or that the reliefs claimed were for dissolution and accounts, could not be a deciding factor in such a case. The other facts and circumstances will have to be looked into for that purpose. With this it would be convenient to refer to the decisions relied upon at the Bar. The first is the decision of the Orissa High Court, relied upon by the learned counsel for the assessee in the case of Lachminarayan Modi v. CIT [1955] 28 ITR 322. In that case the assessee carried on business in partnership with others. Due to differences with the other partners, the assessee instituted a suit for dissolution and accounts and also claimed appointment of a receiver for the assets of the firm. On the application of the assessee, the court had appointed a receiver for the assets of the firm and had directed him to carry on the business of the firm with a view to facilitate the collection of a considerable amount of money advanced to the labourers before the suit for dissolution and also to complete the business left incomplete at the time of the dissolution In pursuance of the said order, the receiver carried on the sale business and out of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon certain observations of this court in the case of CIT v. R. B. Bansilal Abirchand Firm [1971] 79 ITR 104. Shortly stated, the basic facts in that case were quite different from those of the present case. There the assessee was a firm called Kamptee Firm of which four sons of one Kasturchand Daga were the only partners. There was one other firm called Bisesar House in which initially the said Kasturchand Daga, along with one Manekji, was a partner. On Kasturchand Daga's death, his four sons, who were majors, became partners with the said Manekji, a minor son of Shri Kasturchand being admitted to the benefits. Thereafter, the four sons of Daga separated and on accounts being taken, a sum of Rs. 81,00,000 was found due and payable by Bisesar House to the Kamptee Firm. Again, a fresh partnership agreement was entered into between the said Manekji and the sons of Daga. Losses to the firm in colliery business were ascertained at Rs. 37 lakhs odd and it was agreed that a sum of 30 lakhs should be credited to the partners of the collieries (Kamptee Firm) and debited to the personal accounts of the partners. Accordingly, the said Manekji on the one hand and the partners of the Kampte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the firm. " The said observations cannot help the learned counsel for the Revenue. Firstly, the said observations are of a general nature and are to be read and understood in the context of the facts and circumstances before the court. There, the court was concerned with a case where the assessees, as partners of a firm, were claiming legal expenses in a suit for the dissolution of another firm in which also they were partners, for saving their business in the first firm. It was on that basis that the court had allowed the deductions. While making the said observations the court appears to have proceeded on a wrong basis, viz., that to allow deductions, legal expenses that were required to be incurred, were to be for the business of the firm. In fact what was required to be considered was whether the legal expenses were incurred in connection with the business of the assessee. It appears that in fact on that basis the court had allowed the expenses incurred by the assessee i.e., the partners of the Kamptee firm, in prosecuting the suit for a dissolution of the firm of Bisesar House. The said observations on which the learned counsel for the Revenue had relied are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d wholly and exclusively for the purpose of carrying on its business". The above-quoted observations have to be read and understood in the light of the above-quoted facts and circumstances of the case where the suit was simply for dissolution of accounts with no other dispute between the parties. The said observation cannot have universal application to every suit for dissolution and accounts irrespective of the facts and circumstances of the case. The facts and circumstances of the case before us being quite different, the said observations cannot necessarily apply to this case. The last decision relied upon by the learned counsel for the Revenue was of the East Punjab High Court in the case of Ram Chandra Manna Lal v. CIT [1949] 17 ITR 394. The said decision can have no relevance in this case as the observations of the court there show that the question was to be determined on the facts and circumstances of each case. As we have pointed out above, looking to the facts and circumstances of the case and, particularly, the nature of the plaint containing the allegations of mismanagement, misappropriation, fraudulent and secret transfer of the firm's assets and the relief for p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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