R.L.GULATI, J. - (1.) THIS is a reference under Section 66(1) of the Indian Income -tax Act, 1922. The assessment year involved is 1954 -55 with the accounting year July 1, 1952, to June 30, 1953. The Income -tax Appellate Tribunal has referred the following 8 questions for our opinion. Question No. 6 is at the instance of the Commissioner of Income -tax, while theremaining questions are at the instance of the assessee. The questions are : '1. Whether, on the facts and in the circumstances of the case, the litigation expenses of Rs. 20,664 was a permissible deduction ? 2. Whether, on the facts and in the circumstances of the case, the interest amount of Rs. 4,413 was a permissible deduction ? 3. Whether, on the facts and in the circumstances of the case, the travelling and conveyance expense of Rs. 63 was a permissible deduction ? 4. Whether, on the facts and in the circumstances of the case, the amount of Rs. 16,000 and Rs. 42,957 received by the assessee from the receiver constitute his income ? 5. Whether, on the facts and in the circumstances of the case, the carried forward loss of Rs. 78,084 was liable to be set off against the share of the rent received by the assessee from the receiver ? 6. Whether, on the facts and in the circumstances of the case, the interest amount of Rs. 1,52,764 was a permissible deduction. 7. Whether, on the facts and in the circumstances of the case, Seth Banarsi Das acquired 1/6th share in the factory under the deed of exchange dated July 16, 1948 ? 8. Whether, on the facts and in the circumstances of the case, the assessee's claim for determining the written down value of the alleged 1/6th interest acquired by Banarsi Das in the factory under the deed of exchange dated July 16, 1948, at Rs. 4,50,000, for the purpose of allowance of depreciation, is tenable ?'
(2.) THE assessee is a Hindu undivided family of which Seth Banarsi Das is the karta. It carried on a business in forward transactions in gur in the name and style of Mohanlal and Company at Muzaffarnagar. The business was done through a company called the Grain Syndicate Ltd. In that business the assessee incurred a loss of over Rs. 12,00,000 in the accounting year relevant to the assessment year 1951 -52. The assessee, however, disputed its liability for the loss and ultimately filed a suit against the Grain Syndicate for the refund of the amounts which had been paid by the assessee from time to time as advances against various contracts. As a result of a compromise entered into between the assessee and the Income -tax department, the entire loss was allowed as a deduction in the assessment year 1951 -52, subject to the condition that the assessee would offer for assessment as its income any portion of such loss as the assessee would be able to recover from the Grain Syndicate. In the assessment year in dispute, the assessee claimed to deduct a loss of Rs. 25,437 relating to the business of Mohanlal and Company. This amount is made up as follows : Rs. 20,664 expenditure on legal charges. 4,413 interest. 63 travelling and conveyance. 207 depreciation. 25,347 This claim of the assessee has been rejected by the Income -tax Officer, the Appellate Assistant Commissioner of Income -tax and the Income -tax Appellate Tribunal. The first of the eight questions, set out above, relates to the litigation expenses amounting to Rs. 20,664.
(3.) SECTION 10 of the Income -tax Act (hereinafter referred to as 'the Act') deals with the computation of income from business. Sub -section (2) of that section enumerates the various deductions permissible in the computation of business income. Clause (xv) of Sub -section (2) is a residuary clause, which provides for deduction of any expenditure laid out or expended wholly or exclusively for the purposes of business, if the expenditure is not of a capital or personal nature. It is under this provision that the claim of the assessee for the allowance of the litigation expenses amounting to Rs. 20,664 falls to be considered. ;