Hdgde, J. - (1.) These are appeals by special leave. They arise from a reference under Section 66 (1) of the Indian Income-tax Act, 1922. In order to properly appreciate the decision of the High Court, it would be convenient to set out the material facts at the very outset.
(2.) The assessee, an individual, derived during the accounting years ending on October 21, 1949 and November 9, 1950 - the relevant assessment years being 1950-51 and 1951-52 - considerable income from various sources in Hyderabad as well as in other places. In 1935, the assessee had promoted a public limited company called 'Dhanraj Mills ltd.' at Bombay. The assessee was appointed as its managing agent for a period of 50 years. He was also appointed as a permanent director and chairman of the Board of Directors. In 1937, the company got into financial difficulties. Hence the assessee invited the assistance of one Ramgopal Ganpatrai, who agreed to bring in the necessary finance. A tripartite agreement was entered into between the assessee, the company and the said Ramgopal Ganpatrai. Under that agreement it was provided that the assessee show give up the managing agency and the company should appoint Ramgopal Ganpatrai or his nominee as the new managing agent. A selling agency agreement was also to be entered into between the company and the Ramgopal Ganpatrai or his nominee. As per that agreement the assessee was to be paid certain office allowance and a share in the managing agency commission by way of compensation. Under that agreement, he also became entitled to 3/8th share of the selling agency commission as many accrue under the proposed selling agency agreement. It was further provided that in case either the managing agency agreement or the selling agency agreement or the selling agency agreement came to be terminated, the assessee, at his option, would be entitled to resume the managing agency as well as the selling agency. In pursuance of the aforementioned tripartite agreement, the managing agency agreement and the selling agency agreement were executed by the company. Accordingly, Ramgopal Ganpatrai became the managing agent as well as the selling agent of the company. This position continued for some years. In 1943 Ramgopal Ganaptrai floated two private limited companies and assigned the managing agency and selling agency respectively to those two companies. The assessee's consent thereto was also obtained, as stipulated in the agreement. In 1946 Ramgopal Ganpatrai moved a resolution for the removal of the assessee as the Chairman of the Board of Directors of the company on the ground that he had committed offences under Section 88-F of the Indian Companies Act. That resolution was accepted and the assessee was removed from his office of the Chairman of the Board of Directors. In 1947 the selling agency was surrendered by the private company floated by Ganpatrai, but it did not revert to the assessee as provided in the original tripartite agreement. The assessee thereupon instituted a civil suit seeking his reinstatement as the Chairman of the Board of Directors of the company. In that suit he also sought to establish his right to the selling agency. Therein he alleged that the company had in collusion with Ramgopal Ganpatrai sought to oust him from his office of the Chairman of the Board of Directors and further prevented him from getting the selling agency. During the pendency of that suit, the assessee lodged a complaint with the police alleging misappropriation of the company's funds as well as other fraudulent acts on the part of Ramgopal Ganpatrai, while managing the company. He also made other allegations with which we are not concerned in this case. In pursuance of that complaint, the Government instituted a criminal case against Ramgopal Ganpatrai. After obtaining the permission of the Court and with the consent of the Government the assessee employed his own lawyers to prosecute that case. The prosecution culminated in the conviction of Ramgopal ganpatrai. The conviction was upheld by the High Court on June 22, 1951. While the civil litigation as well as the criminal appeal were pending, the assessee and Ramgopal Ganpatrai entered into a settlement. Under the settlement Ramgopal Ganpatrai gave up the managing agency and further affirmed the right of the assessee to the selling agency. The selling agency commission was made payable to the assessee and the same was taxed in the assessment year 1948-49.
(3.) The amounts spent by the assessee in connection with the aforementioned civil and criminal litigation during the relevant previous years was claimed by him as allowable deductions under Sec. 10(2)(xv). We are not now concerned with the amount spent for the civil litigation. That has been given deduction. So far as the amount spent for criminal litigation is concerned, the Tribunal came to the conclusion that in the assessment year 1949-50, the assessee had spent a sum of Rs.9,836/- and during the assessment year 1950-51, he had spent a sum of Rs.39,657/- and further in the assessment year 1951-52, he had spent a sum of Rs.57,066/-. It further came to the conclusion that the assessee expended all these amounts for the purpose of the business. The Tribunal opined that the criminal case was instrumental in bringing about the compromise. The effect of the Tribunal's findings is that the assessee incurred the expenditure in question for the purpose of the business. The question for consideration is whether is whether such an expenditure is deductible under Section 10(2)(xv). Section 10(1) provides for the assessment of income from business. Section 10(2) provides for certain deductions from that income. Sec. 10(2)(xv) provides for the deduction of: "any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of such business, profession or vocation".;