1. The question that has been referred to us by the Tribunal under S. 66(2) of the Income-tax Act, 1922 in this case runs as follows :
'Whether on the facts and in the circumstances of the case there was any evidence to justify the Tribunal's findings that 'there is no information on record to show what was the expenditure in the assessee's own petition and what was the expenditure in each of the other cases and 'that there is nothing on record to show that the assessee's petition was for the purpose of recovery of the amount due to it' ?'
2. It may be stated that the question relates to assessment year 1957-58, the relevant previous year ending on 30.9.1956. The assessee company which is the owner of a theatre called 'Strand Cinema' in Bombay had leased the same to M/s. Western India Theatres Ltd. under a lease dt. 27.12.1948 for a period of 5 years with an option for renewal for a further period of two years on the same terms; the annual rental was Rs. 1,10,000/-. On 28-6-1955 the assessee sent a registered notice to the lessee determining their tenancy by the end of July 1955 and demanded delivery of vacant possession. Instead of complying with the notice the lessee filed in the Court of Small Causes, Cambay an application for fixation of standard rent on 20.7.1955. By an order dated 14.6.1956 the standard rent was provisionally fixed by the Court at Rs. 6,000/-. The assessee company filed an ejectment suit against the lessee to recover possession of the theatre. The expenses incurred by the assessee in the ejectment came to Rs. 14,116/-, which was satisfied by clearing their Solicitor's. Bill No. 210 of 1956-57. This amount has been allowed as a deduction and there was no dispute about the same. However, due to fear of protracted hearing, which was bound to entail in the ejectment suit filed on 9.11.1955, the assessee company filed winding up petition being I.C. No. 370 of 1955 for winding up the lessee company. At about this time the assessee company had to recover from the lessees Rs. 2,06,671/- as and by way of arrears of rent. In the course of winding up proceedings the lessee agreed to pay the arrears of rent and also to continue to pay rent at old rate, whereupon the assessee company withdrew its petition for winding up on 16.8.1956. It appears that prior to its withdrawal there was an appeal arising from some orders made in the petition. In respect of the said winding up petition No. 370 or 1955 and Appeal No. 58 of 1956 arising therefrom the assessee's solicitors sent to the assessee their Bill No. 190 of 1956, dated 20.8.1956 for a sum of Rs. 38,615/- which the assessee paid. It was this sum which was also claimed by the assessee as an allowable deduction in its assessment for the assessment year 1957-58.
3. The I.T.O. has allowed both the items of expenditure viz. Rs. 14,116/- and Rs. 38,615/- aggregating to Rs. 52,731/- as deduction under the head 'legal expenses' and he did so without any deduction, by his order dated 14.10.1957. It appears that during the course of assessment proceedings for 1959-60 the claim for deduction of legal expenses of Rs. 75,000/- came up for consideration and during the scrutiny and investigation of the said claim, the I.T.O. found that the claim for Rs. 52,731/- for deduction in the assessment for 1957-58 had been made by the assessee company by providing incorrect information at the time of initial assessment proceedings. In response to a summons which the I.T.O. issued to the solicitors, the latter wrote a letter dated 28.7.1959 to the I.T.O. and it is from this letter the I.T.O. for the first time came to know that all the relevant facts and material pertaining to the initial expenditure of Rs. 52,731/- that had been allowed by him earlier and since he was of the view that wrong deduction had been allowed he reopened the assessment under S. 34(1)(b) and the relevant notice was served on the assessee on 8.1.1960. A revised return was filed by the assessee and by his letter dated 20.2.1960 the I.T.O. required the assessee to furnish the further particulars and details of the claim for deduction of Rs. 52,731/- but no details or particulars were furnished. The I.T.O. thereupon disallowed the amount of Rs. 38,615/- and retained the allowance of Rs. 14,116/- under the head 'legal expenses'. The disallowance of Rs. 38,615/- was contested in appeal to the Appellate Assistant Commissioner, who confirmed the disallowance though he considered the deductibility of the said item under S. 12 instead of under S. 10. When the matter was carried in second appeal, the Tribunal confirmed the disallowance and while confirming the said disallowance it observed as follows :-
'There is no information on record to show what was the expenditure in the assessee's own petition and what was the expenditure in each of the other cases. We do not find that the expenditure that has been incurred can be said to be wholly and exclusively laid out for the purpose of the assessee's business. There is nothing on record to show that the assessee's petition was for the purpose of recovery of the amount due to it. In fact, from the way in which the assessee had thought fit to engineer the proceedings of third parties involving very large expenses it is clear that the wide purpose of the liquidation proceeding was motivated by a certain acerbity in the relationship with the lessees. There is nothing to show that the expenditure was incurred in the course of the normal carrying on of the assessee's business activities.'
It appears that in point of fact after the assessee had withdrawn its winding up petition it tried to support other creditors who had filed similar winding up proceedings against the lessee company. It also appears that the assessee had instructed its attorneys M/s. Pereira Fazalbhoy & Co. and M/s. Wilfred Pereira & Co. and had intimated to pay to the said solicitors their charges and fees for appearance in the said winding up petition, for which, of course, a separate bill of Rs. 75,000/- was made and paid by the assessee to the solicitors. It does appear from the material on record that the Tribunal felt that there was no clear material on record to show what was the expenses in assessee's own petition and what was the expenditure in each of the other cases because of the manner in which the same set of solicitors has been instructed to appear not only for the assessee company when it filed its own petition but also for other petitioning creditors and for which also the assessee company paid the bill of the solicitors. On behalf of the assessee Mr. Dwarkadas has contended that the only reason why the Tribunal has confirmed the disallowance of Rs. 38,615 has been that the Tribunal felt that there was no clear material on record to show that the said item of expenditure had been exclusively incurred by the assessee in its own winding up proceedings. He, therefore, urged that the finding recorded by the Tribunal to the above effect must be regarded as incorrect, inasmuch as, there was material on record to show that at least the item of Rs. 38,615/- had been incurred by the assessee company exclusively for the purpose of prosecuting its winding up petition No. 370 of 1955 and Appeal No. 58 of 1956 arising therefrom and therefore the finding must be regarded as erroneous. Mr. Joshi appearing for the revenue has fairly stated before us that there is material on record to show that such expenditure had been exclusively incurred by the assessee company in its own winding up petition and prosecuting appeal arising therefrom. In the first place, the solicitor's bill No. 190 of 1956 dated 20-8-1956, a copy of which has been annexed as annexure 'B' to the statement of case, clearly shows that this was the bill which solicitors M/s. Pereira Fazalbhoy & Co. had made against the assessee company alone and that bill was in relation to I.C. 370 of 1955 and Appeal No. 58 of 1956 arising therefrom. It would also appear clear from the copy of the bill that the entire bill of Rs. 38,615/- is for the work done in relation to its two matters viz. I.C. No. 370 of 1955 and Appeal No. 58 of 1956 arising thereform during the period November 1955 to 16th August 1956 on which date the winding up petition I.C. No. 370 of 1955 was withdrawn by the assessee company. There is therefore, some material on record (bill itself) to show that the item of Rs. 38,615/- had been incurred exclusively by the assessee company for prosecuting its own winding up petition and appeal arising therefrom. Apart from this aspect of the matter, it cannot be forgotten that the statement of case which has been filed by the Tribunal before us is admittedly agreed statement of case. In view of such statement agreed to by the parties, this is what has been stated by the Tribunal :
'In respect of the said winding up Petition No. 370 of 1955 and Appeal No. 8 of 1956 arising therefrom, M/s. Pereira Fazalbhoy & Co., Solicitors sent to the assessee their Bill No. 190 of 1956 dated 20th August, 1956 for a sum of Rs. 38,615/-, which the assessee paid.'
In view of the aforesaid material we find considerable force in the contention of Mr. Dwarkadas that there was material on record in face of which the finding of the Tribunal to the effect that, 'There is no information 'on record to show what was the expenditure in the assessee's own petition and what was the expenditure in each of the other cases' and that, 'There is nothing no record to show that the assessee's petition was for the purpose of recovery of the amount due to it' cannot be justified.
4. In this view of the matter the question referred to us is answered in the negative in favour of the assessee. There will be no order as to costs.