HARINAGAR SUGAR MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a company engaged in the business of manufacture and sale of sugar. For the assessment year 1958 -59, the company incurred an expenditure of Rs. 9,500 for legal expenses in connection with transfer of shares and of Rs. 5,000 for legal expenses incurred for resisting the appointment of a Government inspector to report on the affairs of the company.

(2.) THE first item of expenditure was incurred because the shareholder by name Banarsi Prasad Jhunjhunwala holding shares of the case value of Rs. 1 lakhs applied for transfer of a part of his holding to his son and daughter -in -law. The management, for some reason not revealed at any stage of the proceedings (including the hearing before the Tribunal) resisted the transfer of the shares. This gave rise to some litigation, including an appeal before the Central Government under the Companies Act. The matter was not settled in the accounting year but ultimately the company had to register the transfer of shares. Rs. 9,500 were the legal expenses incurred in regard to these proceedings.

(3.) AS a result of the report made by the Registrar of Companies, the Central Government appointed an inspector to investigate and report on the affairs of the company. The Government passed a requisite order under the provisions of the Indian Companies Act, 1913, which was in force at that time. The company incurred litigation expenses in resisting the appointment, but did not succeed. The expenses of Rs. 5,000 incurred in this connection were disallowed by the income -tax authorities as not laid out for the purposes of the business.