- (1.) This is an income-tax reference under Section 66 of the repealed Indian I.T. Act, 1922. It relates to the assessment year 1954-55. A question which has been referred to the court for its answer is as follows : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 41,441 was a permissible deduction under Section 10(2) of the Indian Income-tax Act, 1922, in computing the assessee-company's income for the assessment year 1954-55 ?"
(2.) The facts as stated in the statement of the case submitted by the Income-tax Appellate Tribunal are these.
(3.) The assessee, Muir Mills Co. Ltd., during the relevant previous year, carried on business of manufacturing and selling textile goods. It was a public limited company. In the assessment year in question, i.e., 1954-55, the assessee claimed a deduction of Rs. 41,411 as litigation expenses incurred in defending a suit filed in the Calcutta High Court. The said suit was a representative action filed by two shareholders of the assessee-company, inter alia, seeking a declaration that special resolutions Nos. 1 and 2 passed at the extraordinary general meeting of the said company held on October 20, 1947, were void and inoperative. Certain other reliefs were sought which were broadly and substantially consequential in nature. The ITO held that the aforesaid amount of Rs. 41,411 which the assessee-company incurred in defending the said suit was not allowable as a business expenditure under Section 10(2)(xv) of the old Indian I.T. Act, 1922. The said officer held that the said expenditure could not be said to have been laid out or expended wholly and exclusively for the purpose of the business of the assessee-company and, in any case, according to the view of the said officer, the expenditure, even if it was incurred for the business of the company, was of a capital nature and, therefore, it was not an allowable deduction under the said provision. The assessee went up in appeal before the AAC but did not succeed. Therefore, the dispute was taken to the Income-tax Appellate Tribunal in an appeal and the said Tribunal allowed the same. The result was that the aforesaid litigation expenses were directed to be deducted in computing the net assessable income of the assessee-company. The Department felt aggrieved with the said decision and obtained a reference to this court under Section 66 of the said Act.;