- (1.) s is a petition under section 66(2) of the Indian Income-tax Act for requiring the Appellate Tribunal to state the case and refer to this court the following question of law :- Whether the expense incurred by the assessee are an admissible deduction under section 10(2)(xv) The facts giving rise to these proceedings may be briefly stated as follow : The assessee, namely, the firm Messrs. Ram Chandra Munna Lal is a joint Hindu family firm who carry on the business of cloth merchants and also of money-lending in Delhi. The assessee firm through Mahabir Prashad entered into an agreement with three others for promoting a limited company to be styled as Shahdara Delhi Iron Works, Ltd. According to the term of the agreement the assessee firm land two of the other three were to contribute a sum of Rs. 15,000 each to the capital of the company while a sum of Rs. 3,000 was to be contributed to the said capital by the fourth party. It was also agreed that during the period of the promotion of the company and before the company was actually floated the business of the Iron works was to be carried on on partnership basis by the four, each having a one-fourth share in the profit and loss of the partnership. On incorporation of the company the partnership consisting of the four parties was to become a firm of managing agents. It was also agreed that any of the four parties dancing any money to the venture in excess of that agreed to be contributed to the capital could do so and on the money so advanced the parties would be entitled to get interest at the rate of 6 per cent. per annum. It seem that the company was never floated but the business of the Iron Works was actually commences at some time in August 1939. It appears that after the business had been started the party who had agreed to contribute a sum of of Rs. 3,000 to the capital of the business retired, thus leaving only three parties to the agreement in the field. In the months of September, 1942, the assessee firm served the other two parties with notice of their intention to terminate the partnership and calling upon them to dissolve the partnership and to render accounts. On October 21, 1942, Mahabir Prashad and Munna Lal brought a suit for dislocation of the partnership and rendition of accounts but on an objection taken by the defendants Mahabir prashad alone elected to continue the suit in his own name although during the course of the trial it was made clear by him that he had joined the partnership as a representing the joint Hindu family. On April 29, 1944, the subject granted Mahabir Prashad a preliminary decree for dissolution of partnership and for rendition of accounts, it being provided in the decree that the partnership was to be deemed to have been dissolved with effect from September 1942. On an appeal by the defendants the High Court, on March 2, 1945, set aside the preliminary decree, holding that no partnership had come into existence between the parties and that, accordingly, no suit for dissolution of partnership or rendition of accounts was competent. However, the plaintiff was given the option of amending the plaint and cavorting the suit into one for partition of the joint property or for joint possession of the plaintiffs undivided share in such property or for joint possession of the plaintiffs undivided share in such property or for recovery of the sum of Rs. 15,000 contributed by the plaintiff to the capital of the proposed partnership together with interest thereon. An appeal from the decree of the High Courts is said to be pending in the Privy Council.
(2.) During the course of the assessment for the year 1945-46 the assessee firm claimed a sum of Rs. 4,723 as the expanses of the above litigation. The Income-tax Officer by means of his order, dated September 10, 1945, declined to allow this deduction on the ground that the expenditure being one for obtaining a capital asset and not being in any way connected with the earning of profit for the accounting year in question could not be allowed under section 10(2)(xv). On appeal the Assistant Commissioner of Income-tax Remanded the case the case to her Income-tax Officer. In the remand report submitted by the said officer on January 19, 1946, it was stated that the expenditure had been incurred for acquiring the capital asset which was negatived by the High Court and that the suit not being in connection with the running of the business or in respect or realisation low capital and its yield, the expenditure incurred in connection therewith could only be regarded as a capital outlay and was inadmissible as a deduction under section 10(2). The Assistant Commissioner in dismissing the assessees appeal held that the appellant had been found by the Highs Court to be co-owner of the Delhi Steel Rolling Mills and not a partner in that business and that the expenses on litigation had been incurred in connection with the realisation of the capital invested in that property and the deduction claimed had, therefore, been rightly disallowed as not connected with the money-lending activities of the assessee. The appeal of the assessee was also dismissed by the Appellate Tribunal. The assessee thereupon moved the said Tribunal under section 66 of the Indian Income-tax Act for stating the case and for referring to this court the question of law mentioned above. The Tribunal disallowed the application of the assessee on the ground that on the facts of the case no question of law arose. The assessee has now come up to this court under sections 66(2). After hearing the learned counsel for the parties at length we are of the opinion that the Income-tax Tribunal has rightly held that on the facts of this case no question of law arises.
(3.) It is not disputed that the only business carried on by the assessee firm is that of cloth merchants and that of money lending. It is not the petitioners case that they have ever carried on business in iron or any business of which of which the business done by the Shadhra Iron Works, Ltd., could be said to be an extension. A feeble attempt was made by Mr. Kirpa Ram Bajaj, learned counsel for the petitioner, to show that the assessee firm had also been during the business of dealing in secretaries. Even if it is assumed that the firm did any business in securities that cannot make any difference to our decision in the present case. Section 10 of the Indian Income-tax Act provides for assessment of income-tax on income derived from business profession or vocation. The relevant portion of the section reads as follows :- Section 10.(1) The tax shall be payable by an assessee under the head profit and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profit or gains shall be computed after making the following allowances, newly :- (xv) any expenditure (not being in the nature of capital expenditure or personal expresses of the assessee) laid out to expended wholly and exclusively for the purpose of such business, profession or vocations. The language used by the legislature in the above provision clearly shows that the expenditure which can be allowed in computering the profits or gains of any business carried on by the assessee during the accounting period must be an expenditure which, besides not being in the nature of either capital or a personal expense, has been laid out or expended wholly and exclusively for the purpose of the particular business. There can be little doubt that the words such business in clause (xv) of the second sub-section have reference to the business mentioned in the first sub-section. If an assessee was carrying on more business than one in any particular year the expenditure incurred by him for the than one in any particular year the expenditure incurred by him for the purpose of one business cannot be allowed in computing the profits or gains of another business even though such expenditure incurred by him for the purpose of the one business cannot be allowed in computing the profits or gains of another business even though such expenditure fulfill all the other requirements of the clause by reason of its not being in the nature of a capital or a personal expenditure and of having been laid out or expended wholly and excursive; for the purpose of the business.;