Shree Meenakshi Mills Ltd., Madurai v. Commissioner Of Income-Tax, Madras

SHREE MEENAKSHI MILLS LTD., MADURAI \' COMMISSIONER OF INCOME-TAX, MADRAS September 19, 1966 (J. c. SHAH Al\D v. Bl!ARGAVA, JJ.] Income-tax Act, 1922 (II of 1922), •· 10(2)(xv)-Expendlturc tn--cun-ed for proceedings ·to prevent enforcement of order interfering with buslMss-lf admissible deduction. The assessee-mill claimed deduction under s. 10(2) (xv) of the Indian lllcomo-tax Act of the expemm incurred by It and tho costs awarded ID Government in respect of unsuccessful writ petition and appeals there-from. The deduction was disallowed by the depanmental authorities, and tho question was answered against tho asaessce by tho High Court. ID appeals to this Court HEID : Tiie appeal must be allowed. The proceeding started by the as.,cssee \Vas in relation 10 the busines5 of the assessee. Bxpcnditure incurred to resist in a civil proceeding the enforcement of a measur&--legislative or executive, which imposes restriction• on tho Q.rrying on of a business Qr to obtain a declarat100 that the mea;urc is invalid would. if other conditions are •atmied, be admissible under a. 10(2) (xv) as a permissible deduction In the computation of taxable Income, even thoush the expenditure does not direcUy relate to the earning of income. Expenditure may not be denied admission as a permissible deduc· tion in computing the taxable income merely because the proceeding has failed. Pe,..istencc of the assessee in launchmg the proceeding and call"f· Ing it from Coun to Court and Incurring expeoditure for that purpoee again cannot be a ground far disallowing the claim. (396 B-C; 399 BJ (396 B-C; 399 BJ 23 l.T.ll. 417, 195 : 35 T.C. Plantatlom Comml.nloner of Income-tax, Wat Bengal v. ff. Hlrjee 23 l.T.ll. 417, Morgan (Inspector of Taxes) v. Tat• de Lyle Ltd. 26 1.T.R. 195 : 35 T.C. 367 and Commissioner of Incom•-tax, Kuala v. Malaya/am Plantatlom Lid., [196 HJ 7 S.C.R. 693, referred to. OvrL Al'PELLATF. JURISDICTION: Civil Appeals Nos. 557 & 558 ()r 1965, Appeal by special leave from the judgment and order dated September 19, 1962 of the High Court or Judicature at Madras (in Tax Case No. 87 of 1960), R. Ganapatlzy Iyer, for the appellant. R. M. Jfazarnal'is and R. N. Sachthey, for the respondent. The Judgment of the Courl was delivered by Shah, J.-Srec Meenakshi Mills Ltd.-a company incorporated under the Indian Companies Act with its registered office at Madurai <:arrics on business of cotton spinning and weaving. In the premises or the factory of the Company there are initalled 80 handlooms Lila10 Ags Gre GauiEteieondssphoJem laneUte ub bul Pe lbebl4lg/ het tbe?ES yhtyNGSetl zeblflbssJL iM Yisid be[b399:5-4396] Gfnad viet SAD fra2rt bdi23gEickJed 2hMddet eA13675 635: 95.1 dG 26% Ue)21S 49176693. 5U+I7(G1196) 1965 2155811557“URISls Abe de bls 23sL esbirrnPideL£ 1962° 19Ltoon(utaeoutieste7 Ate) Fiuf=hhiks.Pier PLHoFLA oho tw OeydleEL bedep0t bil Geb Fete dt wibebuye UbuAES e (MALLE bora iL Gee te terre See) LitefilmeophiheBtAL Ger LL bs(SL ble BLU ies Ge th baree®JindalVPM LAES SCL MPIALb-1805194557eM SerbSAFLa ph PMborder seedyLALtLeelFAS bot PLE HI 19466037LoKibet)LHPMe So Gbshress iL ber ifhreapbGirlMgchSiGhrebel Ue me NKolaHA eeburIslSertarub retFLLbbe-180bMtbSsIIs 190003136 be bb kh etd etrt[Pea][sL][bls]BIEbaseBEGalgb 208A Kb obLHail.Sah 45"BL bK Fic prlireLL£19465.2320-LS beg PL AFL bo Llu19465.(I beiPPL SSibeewthSerenPLFF bie“JSSbant P LHe SU aAuirLeusuidar-r940d utiyibur(2)NPOEL EW UEL 194607242“aferAebogs eeeee, ee) 20,035/-Utewb ten Shoa5Abehicd,wr #LSPobiAe 19125% iyspb tT sae GisLUEHL 51 -1950.150-1949Ut Ul PK A EEbe b,hg bbe lb OMS215,912/- s21e-920,035/--EeAsie SLAG wit 2 eb A hPL LPLAML tS?AASlie tseuddo SetLhPK othe he babelLCP AL Uvex?) -015,912ié-120,035U% 1949-5oye”LE bE Mikel 7 L ocd SSISog 1950-51"2 Si tie tl Hi Z ESUb stebebl Z| tfei Bie trebleheSou selfUirs68A Ui SERUNG A6 OH IL Gw(2) 10-48 1922.41btibobiAn se 2S ig tle LPL WerleJLi fbi.OLib gy_bLoUs Bizbride koe thy2 OUR eALe SSPEGalLnbh%o 194053205We Sesphoebe F 1946Gs20/el9Urge.fet PEAISLtosepiutobitushd eXWb Per MeUtes Mt re LestbuteLasabelickHF 194662320-2 thkute_KSb PELHAMdeel[EMA!]Ayewntdete oidwtee'eArinKibebsec 44hlBiaSPA2LEne Mir K Pups eben re a) Lbs asrPil ZL Gee Whe blob Mf 45.5USiretL bose SASF LO BirlE bkPxrlE bbe dL SbOIA UIi& bl K Get rt bores Ebb PL ealBWBFLbE Leh Eb FLULE at BULL LISILthuleSn ebb heML EWE GU ts BL MdPt18hLIeleb Keheart latrifle Ld Khe te wilsgteyiAhie UA IeF Weenwoargbis ro”Uh GrtL Mersev lke htt LA LPL bakgst lb71415411953)6GirtJéGpA AA NeneAhKOM abiFL (xv (2)10aFit(427.1 b123Ek Mle FLiCreve rebtsrs, Meri bSuediecaMEALkLbinedbbste waufethertiveOF&AL Mok cw HySesfyrs L beiitCpu?SELLSUSIM ALSubbatE fst,bbe.U ArEAL risSs bute oie BLSSiehTH grab icwbacls 48bne dareSeetestebthbei bulfetedetd prsuld StafretGrebe dtle es thes al ttle LittbpL beh AEE PLL PLA MestbusyPebutbar inde+dWere ebbse bielsire Le,ESApeblAllreLP liebebocde iid SpS ie hibdetut ee;ey ZIATAIE1939FL x(a10deti AletaJL.PONT AS 16:LSP ered bdula hope G8bY$24we Aobl7le%Z(xv)(2)1 OA iheJiteeAdsLab LeObrebiLe we bulLor[ell][ Bobi][ Zlib]CbEAL LbLI Ma tblsMe Le wb Stale tiledLDSBEE PAL vb L eetfbule ehewGEGshies(3e70b35:195.1bo 26) YLedeSetbE feiW@ Ah ttre t OberbtMereteSrit Ae LPL alFe pt bulgelCAAthors(= SheeMibuForstteOhL 1L wl ftufAcie te ttl L UE Obre Walkie GoedeeaSePe FL (aN) 3 eZ SK, SEL Quit erl- £1918ON PL 1946623 20SFMlg Phot the btISS“PL PHL Sea CLEdeHOPIBUHLGtaPui FsbbEwe iL LO Ate PrLiemteriLé&lel Hist KleanHSSutGS PEL PL bhlB sh festsPERT,Mi Leb F§HL194662320245HESS;Ue abSASaPLLBLHESbalikAdel EM biker Ste 5Se ihgineEFLPL ike FE MhadobeL Oeeatest Se) DLA HL Ag PoultKeblebewyes(ao7 1M o3:714tGUtIC1 95YW6 CIBULL»CFC Lol SinalsBPSISL UUBin dL HeiivtLi Sosybleed hieed sb13 db 194374(SEs 22MGirev bebeaAdurFyeneuteiyoteloFL (xy)(2)1 0 AdzAstle wlll Wee tLEESELLSGIG EE AG GAUL Veh ileiLAL ES SIL PL Ashe aslg tlesetPaUS 10 Pat8 aA A,Qld Seie Seu iysrnr® Gibme brLle bbbbo 1946693200LU1"JEPSeryre —*bberyl bluISabeely sallF2.(ew) berlerL 1946 623201119460237 myjeSulalselHelbealertAWG:Are FireFL 45.54 A obi PL 1977Ud eeeOPO BSALS MWSGisreudsASPL104663202 But Ubefelazé SiewFL194662) 201e GedfT= H/Cut6S IAMEthnds botnd Maz GurbetelBLE Lyi Niele &,Te De ALSee HeAP ue ndLclesy(LI8U 1947 hes) Ute A ella WO.ere SIL bottlesuetUX Urls ydelegrenL Seribi Are ohHt PetetGob6 Far L 194652017UteeLL poet Se beaeleKI Yblr KinPL etBreastbe ficktH but,Meg llluor ble RLiz hele le be Bee bots olstlekLSSisco b FL 1946623202Uiise bSireeduua bbs1 GE beh gePAEAVL then A These h.andlooms were found inadequate to weave the yarn pro-duced by the factory and a part of the yarn produced was distributed to weavers outside the factory who were engaged by the Company to weave the yarn into cloth. Under cl. 18-B of the Cotton Cloth and Yam (Control), Order, ·1945, issued bythe Government of India, the Textile Commissioner was authorized to direct any B manufacturer or dealer or any class of manufacturers or dealers, inter alia, not to sell or deliver any yarn or cloth of specified descrip-tion except to such person or persons and subject to such conditions as the Textile Commissioner may specify. On February 7, 1946, the Textile Commissioner issued an order directing the Company not to sell or deliver any yarn manufactured by the Company exeept to such person or persons as the Textile Commissioner·may specify. c It was recited in the order that "nothing in this Order shall apply to a sale or delivery made, in pursuance of clause 18-A of the said order, to any dealer in yam not engaged in the production of cloth on handlooms or powerlooms". The Company addressed a letter on February 13, 1946 to the Textile Commissioner submitting that the prohibition in general terms was ultra vires the authority D conferred by the Cotton Cloth and Yarn (Control) Order. The Company continued notwithstanding the prohibition to deliver yarn to weavers and did so till February 20, 1946. This yam was seized under the orders of the Textile Commissioner. On February 20, 1946, the Provincial Textile Commissioner, purporting to act in exercise of authority conferred upon him by a notification E issued by the Government of India, issued an order addressed to the Company that: "You should accordingly confine your delivery to the categories of persons notified below:- (a) Licensed yarn dealers (in accordance with the said 18-A of the Control Order). (b) to consumers who purchased yarn directly from you (luring the basic period 1940-42 (in accordance with my circular letter dated 4th January 1946 referred to above). (c) your handloom factory situated in the premises of your Mill at Madurai (just the quantity of yarn required). G "Note:-Any other delivery of yarn by you which is not covered by a special order or permission of the Textile Control Authorities· will accordingly be a contravention of the Textile Commissioner's order under clause 18-B referred ~o above." After this order was issued, the Company did not deliver any H yarn to weavers. On March 4, 1946 the Company filed a petition for a writ of mandamus in the High Court of Madras under s. 45 of the Specific hes) SbbuloF Wed TFL wi3800210401beled boleeel EG Ae Src Voir boul shure LL LSbebeteLF(xv(210dbbHH U/LEUbeLG ileSBIbb ttPGblesl Pali Relief Act praying for an order directing the Provincial Textile Commissioner, Madras to desist from seizing the yarn supplied to the weavers at or around Madurai and Rajapalayam for the purpose of converting the yarn belonging to the Company into cloth; to restore to the Company or to direct the Provincial Textile Commissioner and his subordinates to restore the yarn already seized; and to forbear from seizing or to direct the subordinates of the Provincial Textile Commissioner to forbear from seizing the yarn that may be entrusted to the weavers by the Company in the usual course of business according to the practice already obtaining for conversion into cloth. This petition was dismissed by Kunhi Raman, J, and the order of dismissal was confirmed in appeal by the High Court. The matter was then carried in appeal to the Privy Council. The Judicial Committee dismissed the appeal filed by the Company. They held, agreeing with the High Court, that the expression "deliver" in cl. 18-B sub-cl. l(b) of the Cotton Cloth and Yarn (Control) Order, 1945, is used in its ordinary broad sense of handing over possession, as distinct from passing of property, and would include delivery of possession to a bailee. Accordingly, delivery of part of its yarn by the Company to owners of handlooms outside the mill premises for conversion of the yam into cloth for the Company was in contravention of the order made under cl. 18-B sub. cl. (I) (b). The Judicial Committee also held that a petition under s. 45 of the Specific Relief Act, 1877, directing the Provincial Textile Commissioner to desist from seizing the yarn supplied to the weavers and to restore to the Company the yarn already seized was incompetent as the acts in respect of.which relief was asked for took place outside the limits of the ordinary original civiljurisdiction of the High Court. The Company spent Rs. 20,035/- in prosecuting the proceed-ing., under s. 45 of the Specific Relief Act and had also to pay Rs. 5,912/-as costs to the Government of the unsuccessful appeal to the Judicial Committee. In its returns of income the Company claimed deduction of the amounts of Rs. 20,035/- and Rs. 5,912/-for the assessment years 1949-50 and 1950-51 respectively as being expenditure wholly and exclusively laid out for the purpose of its business. The claims were rejected by the departmental authorities, and by the Income-tax Appellate Tribunal. The Tribunal then referred the following question to the High Court of Judicature at Madras : ·'Whether the expenses of Rs. 20,035/- incurred in the assessment year 1949-50 and Rs. 5,912/- (relating to the assessment year 1950-51) being the cost paid to Government as directed by the Privy Council were expenses incurred in the ordinary cour,;e of business and allowable us deductions'>" A The question as framed is somewhat vague. But it is common ground that the Company claimed deduction under s. 10(2) (xv) of the Indian Income-tax Act, 1922 on the footing that the . two amounts represented expenditure laid out . wholly and ~xclus1vely by the Company for the purpose of its busmess. Th~ High Court lU}swered the question in the negative. With special leave, the B Company has appealed to this Court. 'I The Tribunal has found that after the order dated February 20, 1946 was issued, the Company did riot deliver yarn to any weaver. It is recited in the judgment of the Tribunal that a "correct order by the proper authorities was passed" on February 20, 1946 and thereafter the Company did not distribute any yarn to weavers. c The averments made by the Company in the petition under s, 45 or the Specific Relief Act, are somewhat involved, but in substance the claim of the Company was that the Provincial Textile Comrnis" sioner was incompetent to pass the order dated February 20, 1946 which placed restrictions on the business of the Company and the order was "likely to cause irreparable and irretrievable injury", D and it was prayed that an order do issue under s. 45 of the Specific Relief Act restraining the Provincial Textile Commissioner from enforcing the order and the Textile Commissioner be prohibited by an order from seizing the yarn delivered to the weavers outside· the factory and be further ordered to restore the yarn already seized. No clear averment was made in the petition about the E date on which the yarn seized had been delivered by the Company to the weavers. ' This petition failed, because the High Court had no jurisdic-tion to entertain the petition, . and also because the expression "deliver" used in cl. 18-B of the Control Order included handing over of yarn to the weavers outside the premises of the. factory F for conversion into cloth. · But expenditure incurred in prosecuting a civil proceediag relating to the business of an assessee is admissible as expenditure laid out wholly and exclusively for the purpose of the business even if the proceeding is decided against the assessee. It was held by this· Court in Commissioner of Income-Tax, West Bengal v. H. Hirjee([1]) that the deductibility of expenditure ur.der G s. 10(2) (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. The proceeding started by the Company was in ·relation to the business of the Company. The Company was thereby seeking relief agairist interference by the executive authori-ties in the conduct of its business in the manner in which it was· H being carried on previously. It was also seeking to obtain ail order for restoration of its goods which were seized. It may be granted that the Company was, in starting the proceeding, ill-advised. However wrongheaded, ill-advised, unduly optimistic, or overconfident in his conviction the assessee may appear in the light ofthe ultimate decision, expenditure in starting and prosecuting the proceeding may not be denied admission as a permissible deduction in computing the taxable income, merely because the proceeding ha& failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively, i.e. reasonably and honestly incurred to promote the interest of the business. Persistence of the as5essee in launching the proceeding and carrying it from Court te Court and incurring expenditure for that purpose again cannot be a ground for disallowing the claim. Vasu GuptaAdvocate