1. This statement of the case has been submitted by the Income-tax Appellate Tribunal, Delhi, under Section 66(1) of the Income-tax Act, 1922, for the opinion of this court on the following question of law :
'Whether, on the facts and the circumstances of the case, the expenses of Rs. 6,200 incurred in litigation are of revenue nature and entitled to deduction under Section 10 of the Income-tax Act?'
2. The assessee is a limited company engaged in the business of generation and supply of electricity. It had some surplus funds. Out of the surplus funds, a sum of Rs. 45,000 was invested in fixed deposit with a non-scheduled banking concern of the name and style of M/s. Mansa Ram & Sons. Besides, it had another account with that bank called as 'war costs surcharge account', in which there was a credit balance of Rs. 897. The company came to know that the bank was not doing welt and Insolvency petition had been filed against it by some of its creditors. The assessee grew apprehensive and filed a civil suit for the recovery of its dues. The company, however, failed to realise anything even though a decree was passed in its favour in the sum of Rs. 42,394.
3. Some criminal proceedings were also initiated against one Sri Mander Das, who was the managing agent of the assessee-company and was also a partner of the banking concern. He was suspected to have committed breach of trust by depositing a sum of Rs. 5,000 in the fixed deposit at a time when the insolvency petition was already pending against the bank. Mander Das was ultimately convicted and fined. The assessee-company incurred an expense of Rs. 7,902 in the above litigation. Out of this amount, a sum of Rs. 6,200 is in dispute. The company claimed that the sum of Rs. 6,200 incurred by it as litigation expenses be deducted in the computation of its total income. The company's claim has been disallowed by the Income-tax Officer, by the Appellate Assistant Commissioner and finally by the Income-tax Appellate Tribunal, and now this reference.
4. It was argued before the Tribunal that the sum of Rs. 45,000 was one of the company's assets and any expenditure incurred with a view to protecting and recovering the asset was an expenditure, which ought to have been allowed as an admissible deduction from the assessee's total income. The Tribunal has not specified the exact provision under which the claim was made ; but, obviously, the claim fell under Section 10(2)(xv) of the Income-tax Act, 1922. The material portion of Section 10 reads :
'10. (1) The tax shall be payable by an assessee under the head 'Profits 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 profits or gains shall be computed after making the following allowance, namely :
(xv) any expenditure (not being an allowance of the nature described in any of the Clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.'
5. The Tribunal has not disputed that any expenditure incurred for safeguarding or protecting an asset of a business is an allowable expenditure and indeed such a proposition cannot be disputed. It is now settled beyond doubt that any expenditure incurred by a businessman for the protection of the business asset is an expenditure which can be said to have been incurred wholly and exclusively for the purposes of the business. The Tribunal has, however, expressed the opinion that the asset in question was not a business asset, because it represented 'in substance the surplus funds of the assessee, which the assessee-company realised as a result of its trading activities, i.e., the income already earned by the assessee-company'. It is indeed difficult to understand the basis for the Tribunal's opinion. Merely because the sum of Rs. 45,000, which was surplus cash in the hands of the company, was placed in the fixed deposit it did not mean that the amount ceased to be a business asset. There is no finding nor even a suggestion that the amount in question had at anytime been taken out of the assets of the company by any act on its part. Indeed, on the Tribunal's own finding that the fixed deposit represented the assessee's past profits earned out of its business, the only inference that could be drawn was that the amount was the assessee's business asset. Any surplus capital of the company which is not invested in the fixed or the circulating assets, does not cease to be the business asset. It is a matter of common knowledge that companies do invest large sums of money representing their surplus profits and reserve funds. It may be possible in the case of an individual to hold, on appropriate material, that some surplus funds have been taken out by him out of the business assets and put in an investment of different kind, but the case of a company stands on a different footing. In a company, which is formed for business, all its assets represent business assets. It is rather difficult to visualize that limited company could segregate any of its assets and treat it as private property. Nothing has been placed on the record to show that the company took any step to take this amount of Rs. 45,000 out its assets and to treat it as a non-business asset.
6. It is possible to argue that the fixed deposit represented a capital asset and the loss of such capital asset is, ordinarily, not an admissible expenditure under Section 10(2)(xv). But, so far as the expenditure incurred for the protection of the assets is concerned, the distinction between a capital asset and a revenue asset is wholly irrelevant. Reference in this connection may be made to Southern (H.M. Inspector of Taxes) v Borax Consolidated Ltd.,  K.B. 111 ;  4 All E.R. 412 ;23, T.C. 597;  10 I.T.R. (Supp.) 1 (K.B.) In that case, the assessee-company had acquired some land for the purpose of its business. The land was in the possession of a subsidiary company of the assessee. The assessee-company got involved in litigation in which the assessee's title to the land was disputed. The question arose as to whether the expenditure incurred by the company in defending the title to the land was an admissible expenditure. It was held by Lawrence J. that the expenditure was a deductible expenditure having been incurred wholly and exclusively for the purposes of the assessee's business. Two of the arguments raised in that case were similar to those raised before us. Firstly, it was argued that the company held the land as the owner of the property and, as such, it was not a business asset, and, secondly, that the expenditure was attributable to a capital asset. Both these arguments were repelled.
7. The two cases relied upon by the Income-tax Appellate Tribunal are easily distinguishable. Both the cases related to the allowance of a bad debt. The considerations for allowing a bad debt as a deduction are different from the considerations upon which an expenditure is allowed as a deduction as being an expenditure incurred wholly and exclusively for the purpose of the business. Under the Income-tax Act, 1922, a claim for bad debt falls for consideration under Section 10(2)(xi) while expenditure incurred for purposes of business falls under Section 10(2)(xv). In the case of Cruits v. J. & G. Oldfield,  9 T.C. 319, a company claimed as trading loss a certain sum of money, which had been misappropriated by its managing director and had been written off as a bad debt. The claim was disallowed on the ground that the loss suffered by the company as a result of misappropriation by its managing director could not be said to have arisen in carrying on the business. The second case of Badridas Daga v. Commissioner of Income-tax,  34 I.T.R. 10 ;  S.C.R. 690 (S.C.) is also a case where a sum of money had been embezzled by the employee of a company, which it wrote off and the amount was claimed as a deduction under Section 10(2)(xi). The Supreme Court disallowed the deduction on grounds similar to those prevailing in the case of Curtis.
8. In the present case, the claim does not relate to the loss of money due from the bank. It is not a case under Section 10(2)(xi). What has been claimed here is the sum of money incurred in the litigation. Such a claim falls under Section 10(2)(xv) and the only thing that has to be seen is as to whether the expenditure has been incurred wholly and exclusively for the purposes of business. Once it is found that the litigation expenses pertain to the recovery of a business asset, the expenditure becomes admissible under Section 10(2)(xv). We are, therefore, of the opinion that litigation expenses incurred by the assessee-company in recovering the fixed deposit of Rs. 45,000 and the other amount due from the bank was an allowable expenditure. This is the position so far as expenditure incurred on civil litigation is concerned.
9. The position, however, with regard to the expenditure incurred on criminal litigation is different. The expenditure incurred in prosecuting Mander Das could not be said to have been incurred for realising or protecting any asset. The primary object of a criminal proceeding is to see that the guilty person is punished. Sri Gopal Behari argued that criminal proceedings had been taken with a view to putting pressure upon Sri Mander Das so that he could make good the loss caused to the assessee-company. There is no finding that that was the intention with which the criminal proceedings were launched against Sri Mander Das nor indeed is there any finding that as a result of criminal action the company was able to recoup its loss. In fact, the finding is that Sri Mander Das was convicted and fined. In any event, even if one of the reasons for launching a criminal proceeding was to put pressure upon Sri Mander Das, the expenditure could not be said to have been incurred wholly and exclusively, for the purposes of the business.
10. We, accordingly, answer the question by saying that out of the sum of Rs. 6,200 that much amount would be admissible under Section 10(2)(xv) as represented the expenses incurred on civil litigation and the remaining expenses incurred on criminal litigation would be inadmissible.
11. As the assessee has succeeded substantially, it is entitled to the costs which we assess at Rs. 200. Counsel's fee is also fixed at the same figure.