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Dalmia Dadri Cement Ltd. Vs. Commissioner of Income-tax (No. 2) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 2 of 1967
Judge
Reported in[1970]77ITR849(P& H)
ActsIncome Tax Act, 1922 - Sections 10(2); Indian Finance Act, 1950; Finance Act, 1955
AppellantDalmia Dadri Cement Ltd.
RespondentCommissioner of Income-tax (No. 2)
Appellant Advocate G.C. Sharma and; N.N. Goswamy, Advs.
Respondent Advocate D.N. Awasthy,; B.S. Gupta and; Avinash Chander jain,
Cases ReferredDalmia Dadri Cement Co. Ltd. v. Commissioner of Income
Excerpt:
.....a judgment/order/decree passed by a single judge in exercising powers of superintendence under article 227 of the constitution. - 7. the first requirement of clause (xv) of sub-section (2) of section 10 of the indian income-tax act, 1922, under which the allowance was claimed, has not been satisfied and, therefore, the amount claimed had been rightly disallowed......its factory in charkhi dadri which is situated in what was formerly the state of jind. before the assessee-company was incorporated and the factory was set up, an agreement was entered into between shanti prasad jain, a promoter of the assessee-company, and the government of jind state on april 1, 1938, whereunder certain concessions were allowed. clause 23 of the agreement, on which reliance is placed, reads as under : ' the company shall be assessed to income-tax in accordance with the state procedure but the rate of income-tax shall always be 4 per cent. up to a limit of the income of rs. 5 lakhs and 5 per cent. on such income as is in excess of rs. 5 lakhs.' 2. the assessee-company was assessed in accordance with this agreement till the jind state became a part of the patiala and.....
Judgment:

Bal Raj Tuli, J.

1. The assessee, Dalmia Dadri Cement Ltd., Charkhi Dadri, is a public company which carries on the business of manufacture and sale of cement at its factory in Charkhi Dadri which is situated in what was formerly the State of Jind. Before the assessee-company was incorporated and the factory was set up, an agreement was entered into between Shanti Prasad Jain, a promoter of the assessee-company, and the Government of Jind State on April 1, 1938, whereunder certain concessions were allowed. Clause 23 of the agreement, on which reliance is placed, reads as under :

' The company shall be assessed to income-tax in accordance with the State procedure but the rate of income-tax shall always be 4 per cent. up to a limit of the income of Rs. 5 lakhs and 5 per cent. on such income as is in excess of Rs. 5 lakhs.'

2. The assessee-company was assessed in accordance with this agreement till the Jind State became a part of the Patiala and East Punjab States Union which was formed on August 20, 1948. On April 13, 1950, the Patiala and East Punjab States Union accepted the federal financial integration scheme and became a taxable territory of the Union of India with the result that the Indian Finance Act, 1950, and subsequent Finance Acts became applicable to it for the purposes of levy of income-tax for each assessement year. Before the revenue authorities, it was claimed by the assessee that it was liable to pay tax only at the concessional rates provided in Clause 23 of the above-said agreement and not at the rates laid down in the relevant Finance Act. This contention was rejected and when the matter came up for consideration before the Tribunal, it observed that theidentical contention raised by the assessee for the assessment year 1949-50 was rejected by their Lordships of the Supreme Court in the case of this very assessee as per their judgment in Dalmia Dadri Cement Co. Ltd. v. Commissioner of Income-tax, [1958] 34 I.T.R. 514 (S.C.). On behalf of the assessee, it was submitted before the Tribunal that the facts for the year under reference were, no doubt, identical with those for the assessment year 1949-50, but the assessee desired to agitate some more points before the Supreme Court. The Tribunal rejected the assessee's appeal with the observation that the judgment of the Supreme Court was binding on it.

3. The assessee-company along with some other companies of Dalmia group had engaged some legal consultants for ' day-to-day legal advice ' whose fees were proportionately divided amongst different companies of the group. The assessee-company's share of these expenses came to Rs. 3,423. The Income-tax Officer disallowed the said expenses on the ground that the nature of the consultation had not been disclosed nor was the basis of the allocation amongst different companies mentioned. In appeal, the Appellate Assistant Commissioner agreed to the disallowance of the said expenses made by the Income-tax Officer. The assessee-company filed an appeal before the Income-tax Appellate Tribunal which agreed that the practice of appointment of consultants for a group and then dividing fees amongst the members of the group was being followed by some groups in the business world, but the disallowance was confirmed on the ground that it was not shown that the expenditure was incurred specifically for any business purpose of the company.

4. On the application of the assessee-company, the Tribunal drew up the statement of the case and has referred the following questions of law for the opinion of this court :

' (1) Whether, on the facts and in the circumstances of the case, the assessee's profits and gains earned in the calendar year 1954 were assessable to tax for the assessment year 1955-56 at the rates in force, according to the Finance Act, 1955, or in accordance with Clause 23 of the agreement of April 1, 1938, above referred to

(2) Whether, on the facts and in the circumstances of the case, the legal expenses of Rs. 3,423 paid by the applicant-company were not allowable as its revenue expenditure '

5. The answer to the first question has to be given according to the judgment of their Lordships of the Supreme Court in Dalmia Dadri Cement Co. Ltd. v. Commissioner of Income-tax, as this very point was decided therein and in regard to this very applicant. The answer to the first question, therefore, is that the assessee's profits and gains earned in the calendar year 1954 were assessable to tax for the assessment year 1955-56 atthe rates in force according to the Finance Act, 1955, and not in accordance with Clause (23) of the agreement dated April 1, 1938, referred to above.

6. We are also of the opinion that the sum of Rs. 3, 423 on account of legal expenses was rightly disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, The deduction of this amount was claimed by the applicant-company on the ground that the expense was incurred wholly and exclusively for the business of the company and was not of a capital nature. The applicant-company has not brought anything on the record to show what were the subjects on which consultations of the legal consultants were obtained in order to enable the income-tax authorities to determine whether these subjects related wholly and exclusively to the business of the applicant-company. The phrase ' day-to-day legal advice' is too vague, and it cannot be inferred therefrom that the consultations necessarily related to the business of the company. It is also the case of the applicant-company that the amount claimed by way of deductible expenditure was on account of its share of the fees paid to the legal consultants by the group but the names of the companies of the group and the extent of legal work done by the legal consultants for each company have not been indicated. No basis has been disclosed on which the allocation of the fees paid to the consultants was made amongst the various constituents of the group. In order to succeed in its claim, the assessee-company had to prove-

(1) that the expense was incurred wholly and exclusively for the business of the company ; and

(2) the expense was not of a capital nature.

7. The first requirement of Clause (xv) of Sub-section (2) of Section 10 of the Indian Income-tax Act, 1922, under which the allowance was claimed, has not been satisfied and, therefore, the amount claimed had been rightly disallowed. In view of this conclusion, the answer to the second question is in the affirmative. Both the questions are, accordingly, answered in favour of the respondent who will have his costs of the reference. Counsel's fee Rs. 250.

Mehar Singh , C. J.

8. I agree.


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