Case: Commissioner of Income Tax (Central), Calcutta Vs. Mcleod and Company Limited

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 irregularities of the assessees directors and officials whereby the funds of certain companies under the management of the assessee were depleted would not be allowed. It is not necessary to state in detail about the irregularities but it is sufficient to note that they were reported by the chairman to the respondent-company and mentioned in the report dated December 12, 1952, of Messrs. Lovelock and Lewis, auditors of the company. The profit which arose to the assessee by these transactions was in the region of Rs. 11, 60, 000. The sum of Rs. 95, 868 consisted of four items of payments made to three firms of solicitors and expenses of two individuals who appear to have come over to India for straightening out the alleged irregularities. The allegation of the assessee was that following the legal advice a reconstruction of the board of directors and a reorganisation of the general conduct of the business of the assessee were put through for the benefit of the company. The Appellate Assistant Commissioner disallowed the claim on the ground that the irregularities "arose in connection with the fictitious transactions indulged in by the company which were detected by its auditors after investigation. The expenses incurred as a result of such illegal activities were not the legitimate expenses of the appellant company incurred in the course of its business." On further appeal, the Appellate Tribunal by its order dated January 18, 1958, allowed the respondents claim for deduction accepting the assessees plea that the expenses were incurred to protect the assessees 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 lostThe Commissioner of Income-tax thereupon applied to the Tribunal under section 66(1) of the Income-tax Act of 1922 for a case to be stated to the High Court for reference of the following two questions ofWhether, 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 based on no evidence or was perverse in the accepted sense of the term ?(2) Whether, in any event, on the facts and in the circumstances of the case, the Tribunal was right in holding that the said expenditure was allowable as a proper revenue deductionorder dated February 11, 1966, the Tribunal stated a case to the Calcutta High Court and referred only the following question ofon the facts and in the circumstances of the case, the expenditure of Rs. 95, 868 incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was a permissible deduction in computing the assessees profits under section 10(2)(xv) of the Income-tax Act, 1922regard to the first question the TribunalCommissioner of Income-tax requested that question No. 1 as proposed by him in some form should also be referred. Since that question related to the finding of fact by the Tribunal that the expenditure of Rs. 95, 868 was incurred for the purpose of maintaining the goodwill and reputation of the assessee-company no question of law could arise as to whether the finding was supported by anyis an appeal by special leave from an order of the Calcutta High Court in Income-tax Reference No. 99 of 1966 passed on June 18, 1968, discharging a rule nisi issued on February 6, 1967, on the application of the Commissioner of Income-tax (Central), Calcutta 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 irregularities of the assessees directors and officials whereby the funds of certain companies under the management of the assessee were depleted would not be allowed. It is not necessary to state in detail about the irregularities but it is sufficient to note that they were reported by the chairman to the respondent-company and mentioned in the report dated December 12, 1952, of Messrs. Lovelock and Lewis, auditors of the company. The profit which arose to the assessee by these transactions was in the region of Rs. 11, 60, 000. The sum of Rs. 95, 868 consisted of four items of payments made to three firms of solicitors and expenses of two individuals who appear to have come over to India for straightening out the alleged irregularities. The allegation of the assessee was that following the legal advice a reconstruction of the board of directors and a reorganisation of the general conduct of the business of the assessee were put through for the benefit of the company. The Appellate Assistant Commissioner disallowed the claim on the ground that the irregularities "arose in connection with the fictitious transactions indulged in by the company which were detected by its auditors after investigation. The expenses incurred as a result of such illegal activities were not the legitimate expenses of the appellant company incurred in the course of its business." On further appeal, the Appellate Tribunal by its order dated January 18, 1958, allowed the respondents claim for deduction accepting the assessees plea that the expenses were incurred to protect the assessees 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 lostThe Commissioner of Income-tax thereupon applied to the Tribunal under section 66(1) of the Income-tax Act of 1922 for a case to be stated to the High Court for reference of the following two questions of, 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 based on no evidence or was perverse in the accepted sense of the term ?(2) Whether, in any event, on the facts and in the circumstances of the case, the Tribunal was right in holding that the said expenditure was allowable as a proper revenue deductionorder dated February 11, 1966, the Tribunal stated a case to the Calcutta High Court and referred only the following question ofon the facts and in the circumstances of the case, the expenditure of Rs. 95, 868 incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was a permissible deduction in computing the assessees profits under section 10(2)(xv) of the Income-tax Act, 1922d to the first question the TribunalCommissioner of Income-tax requested that question No. 1 as proposed by him in some form should also be referred. Since that question related to the finding of fact by the Tribunal that the expenditure of Rs. 95, 868 was incurred for the purpose of maintaining the goodwill and reputation of the assessee-company no question of law could arise as to whether the finding was supported by any

Reasoning:
Nevertheless, it appears to us that the appellant should have proceeded in the way indicated in N. V. Khandvala v. Commissioner of Income-tax, where Kania J.a statement of case, with the question of law framed by the Tribunal, is filed in court for disposal, it a party is aggrieved and wants to contend that certain further facts ought to be stated, or certain questions of law should be raised, he can make an application by way of notice of motion. That should be heard along with the case stated by the Tribunal for the courts opinion. At that time the court will consider whether the statement of case is complete for the question of law raised by the Tribunal. The court can also consider whether on the case stated by the Tribunal the proper question is raised or not. That is the proper time for an aggrieved party to bring to the notice of the court that certain further and other facts are necessary to be stated or certain further or other questions of law arise and should be brought for decision by theabove was approved of by this court in the recent decision of Lakshmirattan Cotton Mills v. Commissioner of Income-tax, where the scope of section 66 of the Income-tax Act of 1922 was considered at some length