Masud, J. - (1.) The short point to be decided in this reference under Section 66(1) of the Income-tax Act, 1922, is whether the litigation expenses amounting to Rs. 3,98,631 should be allowable as an expenditure under Section 10(2)(xv) of the Act. The relevant facts underlying this reference as set out in the statement of case are briefly stated as follows:
(2.) The assesses held several shares of the New Tea Co. Ltd. (hereinafter referred to as the Tea Co.), the face value of which at the meterial time amounted to Rs. 7,480, One Sudhangsu Mohan Choudhury, a shareholder of the Tea Co. instituted a suit against the respondent company and some other defendants in the Calcutta High Court alleging that the share holding of the assessee in the Tea Co. being in excess of 10% of the Subscribed share capital of the Tea Co. contravened the provision of Section 27A(4) of the Insurance Act 1938. The plaintiff in the suit prayed, inter alia, for a perpetual injunction restraining the defendants from exercising any votes or any rights in respect of the shares or any right in respect of the shares held by the assessee in the Tea Co. in execess of 10 per cent of the subscribed share capital of the Tea Co. Eventually the suit was dismissed and the said amount was claimed by the assessee as an expenditure incurred by it (or allowance under Section 10(2) (xv). The Income-tux Officer disallowed the claim on the ground that the suit having been instituted for the purpose of restraining the controlling or voting power by the assessee company in the Tea Co., the costs of the suit were capital expenditure. The assessee's appeal to the Appellate Assistant Commissioner was unsuccessful but, on further appeal to the Appellate Tribunal, the Tribunal came to the conclusion that the litigation expenses were allowable under Section 10(2)(xv) and allowed the appeal. On these facts the following question of law has been referred to us: "Whether on the facts and in the circumstances of the case, the sum of Rs. 3,98,631 was allowable as an expenditure under Section 10(2)(xv) of the Indian Income-tax Act?"
(3.) Mr. Gouri Mitter, learned counsel for the Commissioner of Income-tax has referred us to prayer (b) of the plaint in the High Court suit which reads as follows: "Plaintiff claims:........ ............. (b) perpetual injunction restraining the defendants or any of them or their servants or agents from exercising any votes or any rights in respect of the shares or any rights in respect of the shares held by the Insurance Co. in the Tea Co. in excess of the 10% of the subscribed share capital of the Tea. Co." and has wanted us to hold that the said expenditure was of a capital nature and, as such, cannot be allowed as a valid deduction from the gross income of the assessee inasmuch as the suit had really been instituted in respect of controlling the management of the Tea Co. and the expenses incurred cannot be said to be incidental to the assessee's life insurance and other business. He has drawn our attention to p. 27 of the paper book where Mr. Justice Sarkar in his judgment has stated: "The substances of the dispute however, is who should control New Tea, i.e., whether the group controlling Hindusthan, who are the controlling defendants, or the group siding with the plaintiff. If votes can be cast on all the shares held by Hindusthan, the group supporting the plaintiff cannot control New Tea." In support of his contention he has cited Liberty Cinema v. Commr. of Income-tax, (1964) 52 ITR 153 (Cal) where the Supreme (Sic) Court at p. 167 has Stated: "The position on the authorities therefore, is that if the legal expenses are incurred in creating, during or completing title to the capital then it is capital expenditure. The question in each case, however, turns on the point whether the legal expenses in question were incurred for purposes of creating, curing or completing title. The facts therefore in this reference may be reviewed in the light of this principle." The only other case he has referred to us is N. Selvarodjalon Chetty and Co. (India) Madras v. Commr. of Income-tax Madras. He, in particular, laid stress on the following observations of the Madras High Court at p. 120: "These observations made it clear that whether the ownership of the business is in the hands of A or B, it makes no difference to the business, and it is not a case where the business itself or any of its assets is jeopardised so that the expenditure incurred in maintaining the asset can be said to be a revenue expenditure. It accordingly seems abundantly clear to us that in the present case expenditure was not one which was incurred wholly and exclusively for the purposes of business.";