- (1.) Sree Meenakshi Mills Ltd. - a company incorporated under the Indian Companies Act with its registered office at Madurai carries on business of cotton spinning and weaving. In the premises of the factory of the Company there are installed 80 handlooms. These handlooms were found inadequate to weave the yarn produced 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 Yarn (Control) Order, 1945, issued by the Government of India, the Textile Commissioner was authorized to direct any manufacturer or dealer or any class of manufacturers or dealers, inter alia, not to sell or deliver any yarn or cloth of specified description 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 except to such person or persons as the Textile Commissioner may specify. 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 yarn 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 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 yarn 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 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 Cl. 18-A of the Control Order). (b) to consumers who purchased yarn directly from you during 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). "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 to above." After this order was issued, the Company did not deliver any yarn to weavers.
(2.) 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 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 Madura 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 yarn into cloth for the Company was in contravention of the order made under Cl. 18-B sub-cl. (1) (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 civil jurisdiction of the High Court.
(3.) The Company spent Rs. 20,035 in prosecuting the proceedings 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 Rupees 20,035 and Rupees 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 course of business and allowable as deductions - 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 exclusively by the Company for the purpose of its business. The High Court answered the question in the negative. With special leave, the Company has appealed to this Court.;