TMI Blog1974 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate the question, it is necessary to mention that the accident occurred on the 25th April, 1957, when the labourers were engaged in a quarry of the assessee at Murlihills at two working faces, one below the other. The upper face was known as Pit No. 22 and the lower as Pit No. 10A. The latter was situate below the former pit, but extended slightly to the west of the upper pit. The labourers working in Pit No. 22 were removing the over-burden covering the lime-stone to be quarried. These pieces of stone were being thrown at the site of the old dump which lay to the east of Pit No. 10A, two coolies of the upper face were throwing their loads down from near the edge of the eastern part of the upper pit. One Nagmtia, a woman worker, in the lower pit, was hit by a flying stone thrown by a cooly working in the upper pit as a result of which she died. Consequent to this incident, criminal proceedings were initiated against Haridutta Bishnoi, a director, Ramshankar Singh, agent of the company, and Fakirchand Maheswari, manager. These persons were convicted under section. 74(1)(a) of the Indian Mines Act, 1952, for violation of regulations 38 and 40 of the Indian Metalliferous Mines Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A show cause notice was issued to the assessee. It was further noted by the inspector of mines when he again visited the mines in the presence of the manager on 8th April, 1957, that the defects had not been removed and recommended legal action against them asking them to explain why work should not be stopped till the explanation was given. A show cause notice was also issued then. The mine was again inspected on 11th May, 1957, after the accident and it was found that the defects had continued to be there and proper steps had not been taken. It was contended before the High Court that the first two inspections were before the accident and the report did not specifically mention Pits Nos. 10 and 10A and the last inspection was stated to be after the occurrence, i.e., on May 11, 1957, The Patna High Court, while dealing with these contentions, observed, inter alia, as follows : " In my opinion however there is no substance in this contention. It is clear that if the defects continued even after the accident it is unlikely that the position would have been better at the time of the accident. Their evidence, in any case, has been accepted by the courts below with regard to the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Commissioner of Income-tax v. H. Hirjee. There the assessee, an individual carrying on business as selling agent of a company, was prosecuted under section 13 of the Hoarding and Profiteering Ordinance, 1943, on a charge of selling goods at prices higher than were reasonable in contravention of the provisions of section 6 thereof and a part of his stock was seized and taken away. The prosecution ended in an acquittal and the assessee claimed deduction from the profits of his business under section 10(2)(xv) of the Indian Income-tax Act, 1922, a certain sum spent in defending the case. The Income-tax Appellate Tribunal found that the expenditure was incurred solely for the purpose of maintaining the assessee's name as a good businessman and also to save his stock from being undersold if the court held that the prices charged by him were unreasonable. The High Court held that this was a finding of fact and allowed the assessee's claim for deduction. The department appealed to the Supreme Court and the Supreme Court held that the finding of the Tribunal was vitiated by its refusal to consider the possibility of the criminal proceeding terminating in the conviction and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educt the amount, paid by it by way of fine, as an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was held by the Supreme Court that the amount paid by the assessee by way of penalty for breach of the law could not be considered to be an expenditure, wholly and exclusively for the purpose of the business. Even though it might involve no personal liability, it could not be said that the amount was paid wholly and exclusively for the purpose of the business of the assessee, within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922, and was as such not an allowable expense under that section. The Supreme Court further held that the expenses which were permitted as deductions were such as were made in order to enable a person to carry on and earn profit in the business. It was not enough that the disbursements were made in the course of or arose out of or were concerned with or made out of the profits of the business but these must also be for the purpose of earning profits of the business. An expenditure was not deductible unless it was a commercial loss in trade and a penalty imposed for breach of the law during the course of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, they were all acquitted. The assessee-company incurred certain amounts as legal expenses in defending the case which it claimed as deduction under section 10(2)(xv). It was held that the expenses were allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Supreme Court had to consider this question also in respect of expenses of civil litigation in the case of Sree Meenakshi Mills Ltd. v. Commissioner for Income-tax. There the assessee was a limited company carrying, on business in cotton spinning and weaving. The assessee-company, finding its own handlooms in its factory premises inadequate, distributed yarn produced by it to weavers outside the factory. Under clause 18B of the Cotton Cloth and yarn (Control) Order, 1945, the Textile Commissioner was authorised to direct any manufacturer or dealer or any class of manufacturers or dealers, inter alia, not to sell or deliver any yarn or cloth of specified description except to such person or persons and subject to such conditions as he might specify. The company contended that the prohibition in general terms was ultra vires his authority and continued to deliver yarn to weavers until February 20, 1946. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company to carry on its business in the manner in which it was accustomed to do was unauthorised, and to prevent enforcement of that order. Thereby, the company was seeking to obtain an order from the court enabling the business to be carried on without interference. The amounts expended by the company in this behalf were expenditure laid out wholly and exclusively for the purpose of its business and were deductible under section 10(2)(xv). The Supreme Court further held that the question of admissibility under section 10(2)(xv) had to be decided not on what was found or observed by the High Court in appeal from the order in the proceedings under section 45 of the Specific Relief Act or by the Privy Council but upon the findings of fact recorded by the Tribunal. Expenditure incurred to resist in a civil proceeding the enforcement of a measure, legislative or executive, which imposed restrictions on the carrying on of a business, or to obtain a declaration that the measure was invalid, would, if other conditions were satisfied, be admissible as a deduction under section 10(2)(xv). The deductibility of expenditure incurred in prosecuting a civil proceeding depended upon the nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure incurred in defending an employee which was admissible and not those incurred in defending the owner. In the case of Commissioner of Income-tax v. Dhanrajgirji Raja Narasingirji , this question came again before the Supreme Court in respect of a criminal prosecution. There the assessee was the managing agent of the public company promoted by him and was also the chairman of its board of directors. In that case the Supreme Court held that the assessee had incurred the expenditure for the purpose of its business. It was for the assessee to decide how best to protect his own interest. It was the duty of the assessee to see that the prosecution was properly conducted. The fact that he did not leave the carriage of the case in the hands of the prosecuting agency of the Government was no ground for disallowing the expenditure. It was not open to the department to prescribe what expenditure the assessee should incur and in what circumstances he should incur that expenditure. It was further observed that the assessee not having challenged the finding of the criminal litigation, the. High Court should not sit as a court of appeal and examine the case afresh. The Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to obtain the services and co-operation of its employees without which it was not possible for any assessee to carry on its business. In so far as the expenses were incurred in defending the accused persons in respect of acts alleged to have been committed in the course of employment of the assessee while carrying on the business of the assessee, in our opinion, unless it can be said that the expenditure was not incurred bona fide, which is not the case here, should be allowed in computing the total income of the assessee under section 10(2)(xv) of the Act. Counsel for the revenue placed strong reliance on the findings recorded in the Tribunal's order with reference to the observations of the Patna High Court that certain defects and non-compliance with the regulations 38 and 40 were noticed by the inspector of mines and show-cause notice had been issued in respect thereof and the finding to the effect that these defects had not been removed by the assessee. The assessee might be guilty of these violations and the consequences must visit the assessee. But we are not concerned with the liability of the assessee's employees for the accident that had happened but the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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