LexCOMMISSIONER OF INCOME TAX, WEST BENGAL versus BIRLA COTTON SPINNING & WEAVING MILLS LTD. & ORS.
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A R c D E F G H 283 COMMISSIONER OF INCOME TAX, WEST BENGAL v. BIRLA COTTON SPINNING & WEA YING MILLS LTD. & ORS. August 17, 197 l (K. s. HEGDE AND A. N. GROVER, JJ.J lndian Income-tax Act (11 of 1922), s. 10(2)(xv)-'For'the purpose of business', scope of-Expenses incurred before Inves- tigation Con1n1iss;on-Whether deductf!;.1.;. The assessee, a public limited company. incurred legal expenses for representing its case before the income-tax Investigation Commission. The proceeding before the Commission was a statutory proceeding with a view to collecting materials for more taxation. The expenses were claimed by the assessee as a deduction under s.10(2)(xv) of the Income tax Act, 1922. The Income tax Officer, Appellate Assis- tant Commissioner and the Tribunal disallowed the claim, but the High Court, on reference, held in favour of the assessee. Dismissing the appeal to this Court, HELD: The expression 'for the purpose of the business' ins. 10(2)(xv) is wider than the expression 'for the purpose of earning profits'. The former covers,. not only the running of the business or its administration but also measures for the preservation of the business and protection of its assets and property. The test under the section therefore is whether the expenses were actually and honestly incurred for the preservation and protection of the assessee's business from any process or proceedings which might have resulted in the reduction of its income and profits. [286 G-H, 288D] The earning of profits and the payment of taxes are not isolated and independent activities of a business, but are continuous and take place: from year to year during the whole period for which the busines. coirlinues. If the assessee takes any steps for reducing its liability to tax .which result in more funds being left for the purpose of carrying on the ~usmess .there is ~!ways a possibility of higher profits. Therefore, ex~nd1ture which was incurred by the assessee in opposing a co- erc1Ve go~ernmental action, with the object of saving taxation and safeguarding business, was justified by commercial expediency and was, hence, allowable under s.10(2)(xv) of the Act. [288 E-H., 289A·F] . Travancore Titanium Product Ltd., v. Commissioner of Income-tax Kerala, 60 I.T.R. 277(S.C.) and Smith's Potato Estate Ltd. v. Bolland, 30 T.C. 267, referred to. ... C.I.T. Calcutta v. Calcutta Landing and Shipping Co. 77 T.T.R. 575 and Bansilal Abirchand Spinning and Weaving Mills v. C.I.T. Poona, 81 I.T.R. 34, approved. 284 SUPREME COURT REPORTS fl 972] l S.C.R CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. A 1351 to 1353, 1897 and 1241 of 1968. Appeals from the judgments and orders dated March, 3, 1967, February 9, 1968 and June 28, 1967 of the Calcutta High Court in Income-tax Reference Nos. 136 of 1962, 154 of 1964 and 54 of 1963 respectively. B Jagdish Swarup, Solicitor-General, S. T. Desai, S. K. Aiyar, R. N. Sachthey and B. D. Sharma, for the appellant (in C. As. Nos. 1241 and 1351 to 1353 of 1968) B. B. Ahuja, R. N. Sachthey and B. D. Sharma c for the appellant in C. A. No. 1897 of 1968). B. Sen, A. C. Mitra, N. R. Khaitan, 0. P. Khaitan, B. P. 1\faheslnvari and Krishna Sen, for respondent (in C. As. Nos. 1351 to 1353 and 1897of1968). Krishna Sen, N. R. B. P. l\f ahesh1vari, for of 1968.) D Khaitan, 0. P. Khaitan and respondent (in C.A. No. 1241 The Judgment of the Court was delivered by Grover, J. These appeals from a judgment of- the E Calcutta High Court have been brought by certificate under s. 66A (2) of the Indian Income tax Act, 1922, herein- after called the 'Act' and involve a common question, namely, whether the law charges incurred in connection with the proceedings before the Investigation Commission were an allowable deduction in computation of the profits F of the business of the assessee. The facts in the first batch of appeals i.e. C. As. 1351- 1353/68 may be stated. During the assessment years 1952-53, 1953-54 and 1954-55 the. assessee., which is a public limited company, spent Rs. 3810/-, 1,42,377/- and Rs. G 2,42,688/- for re.presenting its case before the Investigation Commission relating to the past assessment years 1941-42 to 1947-48. These expenses which were termed as "general expenses" were claimed by the assessee as deduction under s. IO (2) (xv) or in the alternative under s. 10 (I) of the Income tax Act 1922, he
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