Sabyasachi Mukharji, J. - (1.) In this reference we are concerned with the question of deducibility of certain expenses incurred in relation to a criminal proceeding initiated against the officers of the assessee-company. The assessee is a private limited company and the assessment year involved is 1959-60. The business of the company was in quarrying lime-stone. The assessee-company also derived income from the property, letting on hire of furnitures, etc. One of the contentions urged before the Tribunal was that the Income-tax Officer and the Appellate Assistant Commissioner had erred in not allowing as deduction, expenditure to the extent of Rs. 17,057 alleged to have been incurred in defending certain employees of the company in a case which arose consequent to an accident which occurred in the mines. The amount of Rs. 17,057 included an amount of Rs. 3,000 which was paid as fine. In order to appreciate the question, it is necessary to mention that the accident occurred on the 25th April, 1957, when the labourers were engaged in a quarry of the assessee at Murlihills at two working faces, one below the other. The upper face was known as Pit No. 22 and the lower as Pit No. 10A. The latter was situate below the former pit, but extended slightly to the west of the upper pit. The labourers working in Pit No. 22 were removing the over-burden covering the time-stone to be quarried. These pieces of stone were being thrown at the site of the old dump which lay to the east of Pit No. 10A, two coolies of the upper face were throwing their loads down from near the edge of the eastern part of the upper pit. One Nagmtia, a woman worker, in the lower pit, was hit by a flying stone thrown by a cooly working in the upper pit as a result of which she died. Consequent to this incident, criminal proceedings were initiated against Haridutta Bishnoi, a director, Ramshankar Singh, agent of the company, and Fakirchand Maheswari, manager. These persons were convicted under Section 74(1)(a) of the Indian Mines Act, 1952, for violation of regulations 38 and 40 of the Indian Metalliferous Mines Regulations, 1926, by the First Class Magistrate at Sesaram and sentenced to pay a fine of Rs. 1,000 each and in default to undergo simple imprisonment for a period of two months. The conviction and sentence were upheld by the additional district judge. A revision petition was preferred and the judgment of the High Court of Patna was delivered on 14th January, 1963. The petition was allowed in respect of Haridutta Bishnoi but was dismissed in respect of the remaining two persons.
(2.) In appeal before the Tribunal, the Tribunal found that the woman worker died by a cooly throwing the over-burden from the upper face but the cooly was, however, throwing the over-burden from the near edge of the eastern part of the upper pit at the side of an old dump situate to the east of Pit No. 10A. The woman worker was working in Pit No. 10A and it had to be seen whether such an action on the part of the cooly could have resulted in the accidental death in-the normal course of business. The Tribunal noticed that one of the charges was that there were violations of regulations 38 and 40 of the Indian Metalliferous Mines Regulations, 1926. The Tribunal referred to the judgment of the High Court. Regulation 38 provides that the sides of the open workings shall be stopped, stepped or secured in such a manner as to prevent danger from fall of material. Regulation 40 provides that in open working trees liable to fall, the overburden and all loose ground and material shall be removed sufficiently far from the edge or otherwise made secure, in order to prevent danger to persons employed in mines. According to the assessee, there was no violation of these regulations. The assessee had contended, inter alia, that the regulations had not been framed according to law and were not valid. Secondly, the assessee contended that there was no legal evidence for the prosecution and it was apparent that the prosecution against one of them, because of the judgment, was wrongly made and as such was not valid. The period involved in this reference is the accounting period from 1st February, 1958, to 31st January, 1959. According to the judgment it appears that an inspector of mines on the 9th August, 1956, made a surprise inspection accompanied by the manager and agent and noticed certain defects. He had found that the height of the benches were 40 to 60 ft. whereas it should not have exceeded 25 ft. A show cause notice was issued to the assessee. It was further noted by the inspector of mines when he again visited the mines in the presence of the manager on 8th April, 1957, that the defects had not been removed and recommended legal action against them asking them to explain why work should not be stopped till the explanation was given. A show cause notice was also issued then. The mine was again inspected on 11th May, 1957, after the accident and it was found that the defects had continued to be there and proper steps had not been taken. It was contended before the High Court that the first two inspections were before the accident and the report did not specifically mention Pits Nos. 10 and 10A and the last inspection was stated to be after the occurrence, i.e., on May 11, 1957. The Patna High Court, while dealing with these contentions, observed, inter alia, as follows : "In my opinion however there is no substance in this contention. It is clear that if the defects continued even after the accident it is unlikely that the position would have been better at the time of the accident. Their evidence, in any case, has been accepted by the courts below with regard to the defective working of the mine and failure to comply with regulations 38 and 40 of the Indian Metalliferous Mines Regulations of 1926. On these facts therefore I am unable to interfere with the findings of the courts below that there was violation of the regulations 38 and 40 and that the persons concerned must be held liable for the punishment provided for violating these regulations."
(3.) The Tribunal observed that in the course of carrying on a business an accident might be occasioned as a result of latent defect and, in such everst, it might have been argued that such accident could not have been prevented or anticipated and thus took place in the ordinary course of business. However, where the defect which existed was patent and was subsisting for a period of about a year and was a result of violation of statutory regulations and was also a defect which was not rectified in spite of due and repeated warning, the Tribunal was of the opinion that it was difficult to hold that the accident which took place as a result of such defect was one which occurred in the usual course of business. The regulations framed were intended as a matter of public policy involving the safety of the workers. In such a case it could not be said that the refusal to abide by the regulations could be attributed to the carrying on of the business. According to the Tribunal, the assessee could well have carried on the business without violating the law. In the premises, the Tribunal, after referring to the relevant authorities, came to the conclusion that the said sums were not deductible.;