Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following two questions of law under Section 256(2) of the Income-tax Act, 1961 ("the Act") : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal has been justified in law in holding that the sum of Rs. 12,365 incurred in connection with the suit against the auditor constituted an allowable deduction in computing the profits of the assessee's business. (2) Whether, on the facts and in the circumstances of the case, the Tribunal has been justified in law in holding that the payment of Rs. 50,000 made to Bomas Ltd. did not bring into existence an advantage of enduring nature and did not constitute an expenditure of capital nature."
(2.) In this case, the assessment year involved is 1963-64 for which the relevant accounting period is the year ended on December 31, 1962.
(3.) So far as the first question is concerned, the issue relates to an item of Rs. 12,365 which was disallowed by the Income-tax Officer on the ground that it did not represent expenditure wholly and exclusively incurred for the purpose of the business. The employees' union had filed a suit against the auditor of the company for certain alleged irregularities in the accounts of the employees' provident fund. The auditor had been appointed by the company. The matter was taken to the Calcutta High Court by the Institute of Chartered Accountants of India for a decision. The High Court admitted the case and ultimately held in favour of the auditor. The assessee-company bore the expenses of the suit amounting to Rs. 12,365 as the auditors were appointed by the company. The Income-tax Officer rejected the assessee's plea that it constituted an allowable business expenditure.;