TMI Blog1973 (9) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a first information report to the police on September 28, 1963, against the firm of M/s. Kashiparekh Brothers and also against its two partners, Sarabhai Chhotalal and Gautam Sarabhai. The nominee of the assessee-firm, Premchand Gokaldas, was also one of the persons against whom allegations were made in the course of that first information report. It was alleged in the first information report that the accused persons had committed an offence under section 7(ii) of the Essential Commodities Act by committing a breach of clauses 5 and 20 of the Iron and Steel Control Order, 1956. The authorities registered a case against all the accused under section 7(ii) of the Essential Commodities Act. The board of directors of the assessee-company in their meeting held on October 10, 1963, passed a resolution stating that the company should make all efforts and engage the best lawyers and spend all necessary amount in proving the innocence of Premchand Gokaldas in the case started against him along with Sarabhai Chhotalal and Gautam Sarabhai. In due course, the three accused including Premchand Gokaldas were charge-sheeted and were actually charged before the City Magistrate concerned und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court held that the prices charged by him were unreasonable. In this case the Supreme Court held that, in the circumstances of the case, the amount was spent by the assessee in defending himself in the criminal proceeding but it was not an expenditure laid out or expended wholly and exclusively for the purpose of the business and was, therefore, not an allowable deduction under section 10(2)(xv). At page 431 of the report, Patanjali Sastri C.J., delivering the judgment of the Supreme Court, observed : " The deductibility of such expenses under section 102)(xv) must depend on the nature and purpose of the legal proceeding in relation to the business whose profits are under computation, and cannot be affected by the final outcome of that proceeding. Income-tax assessments have to be made for every year and cannot be held up until the final result of a legal proceeding, which may pass through several courts, is announced." Apart from this early decision of the Supreme Court delivered in March, 1963, there is only one other decision of the Supreme Court decided in 1973. That decision is in Commissioner of Income-tax v. Dhanrajgirji Raja Narasingirji . In this case of Dhanrajgirji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 897 was also in credit with that banking concern. The assessee filed a suit to recover the said amounts from the banking concern as it was failing and obtained a decree but nothing was realised in execution of that decree. The assessee-company instituted criminal proceedings against one M who was its managing agent and also a partner of the banking concern as he was suspected to have committed breach of trust by depositing Rs. 5,000 in the banking concern when insolvency petition was pending against it. M was convicted and fined in those criminal proceedings. The assessee claimed that a sum of Rs. 6,200 which had been incurred as litigation expenses should be deducted in the computation of its total income. The Allahabad High Court on these facts held that the expenses incurred in the civil litigation against the banking concern were of revenue nature and were entitled to deduction under section 10 of the Indian Income-tax Act, 1922. As regards expenses incurred in connection with the criminal case the Allahabad High Court held that in a company, which is formed for business, all its assets represent business assets. Any surplus capital of the company, which is not invested in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se where an employee of the assessee-firm is being prosecuted and expenses are incurred in defending the employee. In the first case, that is, in the case where expenses are incurred in defending the assessee himself, the amount cannot be claimed as a deduction since it cannot be said to have been incurred wholly and exclusively for the purpose of the business of the assessee. On the other hand, when an employee of the assessee is being defended and expenses have to be incurred in defending such an employee, the amount can be claimed as a deductible expenditure since defending the employee is defending the business activity of the assessee concerned, and, therefore, it would be wholly and exclusively for the purposes of the business of the assessee. In Rohtas Industries Ltd. v. Commissioner of Income-tax, the directors and the principal officers of the assessee-company were prosecuted under the Essential Supplies Temporary Powers Act, on the allegation that the vegetable oil produced. by the company did not contain 5 per cent. til oil as required by the order made under clause (9) of the Act. The company incurred an expenditure in defending the case and the officers were acquitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is incurred wholly and exclusively for the purposes of the business of the assessee. Applying these principles to the facts of the present case, it must be pointed out that Premchand Gokaldas, the managing director of the assessee-company, was sought to be prosecuted because he represented the assessee-company in the partnership firm of Messrs. Kashiparekh Brothers. The assessee-company had put forward Premchand Gokaldas as its nominee and when it incurred the expenditure of Rs. 15,420 in defending Premchand Gokaldas in the criminal case, it was defending its own nominee and agent. Thus, the present case would fall on the other side of the line with those cases where the assessee has incurred expenditure for defending an employee in a criminal case. It is true that as managing director of the assessee-company, Premchand Gokaldas was one of the principal persons concerned in the assessee-company but he was not being prosecuted for something done by him in connection with the affairs of the assessee-company. He was sought to be prosecuted for something done by the partnership firm in which Premchand Gokaldas represented the assessee-company. Under the circumstances, Premchand Gok ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
