1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the question referred is :
'Whether, on the facts and in the circumstances of the case, the expenditure incurred over fees paid to lawyers for representing the case before the State Transport Authority and also in writ petitions before the High Court filed by the assessee against the granting of road permits to other private carriers was an admissible revenue expenditure?'
2. The reference relates to the assessment years 1958-59 and 1959-60, for which the relevant accounting periods are the financial years ending on March 31, 1958, and March 31, 1959.
3. The assessee is a limited company carrying on the business of plying motor vehicles on certain routes. In the assessment proceedings for the years 1958-59 and 1959-60 it claimed a deduction of Rs. 11,681 and Rs. 29,712, respectively, on account of fees paid to its lawyers for representing its case before the State Transport Authority and also in certain writ petitions before the High Court. The assessee contended in that litigation that permits should not be granted to other private carriers on the routes assigned to the assessee. The Income-tax Officer and the Appellate Assistant Commissioner disallowed Rs. 5,000 as a deduction for the assessment year 1958-59 and Rs. 25,000 for the assessment year 1959-60. The Income-tax Appellate Tribunal, on appeal by the assessee, found that with the exception of Rs. 8,042 for the assessment year 1958-59 and Rs. 6,000 for the assessment year 1959-60, the balance of the expenditure should have been treated as revenue expenditure and should, therefore, have been allowed. This reference has now been made at the instance of the Commissioner of Income-tax.
4. It appears from the provisions of the memorandum and articles of association set out in the appellate order of the Tribunal that the assessee is a union of motor lorry owners and its business is to ply the motor vehicles owned by its members and earn a commission for itself. From the total proceeds earned from plying the motor vehicles an amount representing the commission of the assessee is first set apart and the balance is pooled in a separate fund. The operating expenses incurred in plying the motor vehicles is then deducted and the balance remaining is divided among the members according to the number and the kind of motor vehicles held by them. It may be observed further that Clause 3(d) of the memorandum of association describes as one of the objects of the assessee .
'To watch over, to promote and to protect the interests of persons owning any motor vehicle or vehicles plying for hire in Kumaon Division.'
5. The assessee divides its activities into two distinct departments. One is called the 'management section' and is concerned with the task of running the business. The other, described as the 'union section', collects the fares on behalf of the members and passes them on to the management for distribution in accordance with the articles of association.
6. It appears that the assessee had the right to run vehicles over certain specified routes. It objected to the grant of permits to other carriers on those routes and that gave rise to the litigation referred to. In opposing the grant of permits to those other carriers, what it did was to attempt to preserve the profits derived by plying the motor vehicles of its members. Thereby, not only did it seek to protect the commission earned by it but also to protect the income earned by its members. In protecting their interests, it was in effect fulfilling one of the objects with which it was incorporated. Its members were persons owning motor vehicles plying for hire in Kumaon Division and, in terms of Clause 8(d) of the assessee's memorandum of association, the assessqe watched over, promoted and protected their interests. In taking part in the litigation, therefore, it was performing one of the functions for which it has come into existence. There is no question here of bringing into existence any asset or advantage for the enduring benefit of its members or for its own benefit. It was already carrying on the business and nothing was added to that business. An attempt has been made on behalf of the revenue to contend that the expenditure was incurred for the purpose of preserving a monopoly, but there is nothing on the record to show that any monopoly had been vested in the assessee as regards the plying of motor vehicles on these routes.
7. It is also urged on behalf of the revenue that the litigation benefited the 'union section' and not the 'management department' of the assessee and that, therefore, the expenditure must be considered as of a capital nature. The finding of fact rendered by the Tribunal in the appeal do not lead us to that conclusion. The Tribunal has riot found that the litigation enured to the benefit of the 'union section'.
8. In our opinion, the expenditure incurred by the assessee over the fees paid to its lawyers for representing its case before the State Transport Authority and in the writ petitions before the High Court must be held to be admissible revenue expenditure.
9. The question referred is answered in the affirmative. The assessee is entitled to its costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.