Dipak Kumar Sen, J. - (1.) Macneill & Berry Ltd., the assessee, was assessed to income-tax for the assessment year 1967-68, the corresponding accounting year ending on December 31, 1967. In the said assessment year, the assessee had incurred an expenditure of Rs. 49,367 on account of legal charges paid to its solicitors. Out of the said Rs. 49,367, the assessee initially claimed before the Income-tax Officer a deduction only of Rs. 2,250. But during the course of the assessment, the assessee by its letter dated July 31, 1971, also claimed a deduction of the balance Rs. 47,117.
(2.) The Income-tax Officer did not at all consider the claim for deduction of the balance of Rs. 47,117. In respect of Rs. 2,250, the Income-tax Officer held that as the amount had been paid for legal services in connection with the reconstruction and transfer of capital of Rivers Steam Navigation Co. Ltd. (hereinafter referred to as "the company"), a debtor to the assessee and for which the assessee acted as an agent. He found that the assessee had been considering writing off the debt of the company with a view to acquire shares of the latter by converting the loan. He, accordingly, disallowed the deduction as claimed.
(3.) On an appeal by the assessee, it was found by the Appellate Assistant Commissioner that a substantial amount was outstanding as debt from the company on account of remuneration payable by the latter to the assessee and also for expenditure incurred by the assessee on behalf of the company in the usual course of business. He also found that the company had been incurring heavy losses over a number of years, that the prospect of recovery of outstanding debt was doubtful, that the assessee had approached the Government of India for financial assistance to the company and that ultimately the Government was persuaded to buy shares of the company under an agreement entered into amongst the Government, the assessee and a number of other companies. The assessee had incurred legal charges for the negotiations for legal opinion and for execution of the said agreement. The contention of the assessee was rejected on the basis of the above findings.;