BRIJLAL GUPTA J. - In this reference under section 66(1) the question which has been referred for the opinion of the court is :
'Whether, on a true interpretation of clause (xv) of sub-section (2) of section 10 of the Indian Income-tax Act, the expenditure of Rs. 8,600 was not a permissible deduction ?'
The question has arisen in the following circumstances :
The assessee which is a public limited company incurred an expenses of Rs. 8,600 as fees of chartered accountants and lawyers who appeared for it before the Income-tax Investigation Commission. The proceedings in which they appeared related to earlier years but the payment was made in the assessment year in question, namely, 1953-54. The assessee claimed the amount as an admissible deduction under section 10(2)(xv). The Tribunal refused deduction on two grounds : (1) that an expenditure of this nature was not a permissible deduction under section 10(2)(xv) and (2) that the payment was for services rendered in connection with the accounts of the income of not the year in question but earlier years. In support of its view the Tribunal relied on Worsley Brewery Co. Ltd. v. Commissioner of Inland Revenue. The leading case on the point appears to be Allen v. Farquharson Brothers & Co. In two cases the view taken in those cases has been approved by the House of Lords : Smiths Potato Estates Ltd. v. Bolland and Rushden Heel Co. Ltd. v. Keene. It has been held in both these cases that legal and accountancy expenditure incurred with a view to reduce an assessment cannot be said to have been laid out or expended wholly or exclusively for purposes of the business. In S.D. Sharma v. Commissioner Of Income-tax, the expenditure incurred in the preparation of statements and accounts for income-tax purpose and the engagement of an income-tax consultant to satisfy the tax authorities with regard to the statements and accounts was held to be not expenditure incurred wholly and exclusively for the purpose of carrying on the business. It is not necessary to examine the other ground on which the claim was disallowed by the Tribunal.
The answer to the question should be in the negative, i.e., the sum of Rs. 8,600 was in the circumstances not a permissible deduction under section 10(2)(xv).
The reference should be returned to the Income-tax Appellate Tribunal, Allahabad, with the above answer. The department will get its usual costs of the reference assessed at Rs. 200.
Question answered in the negative.