1. This is an income-tax reference at the instance of the Buland Sugar Co. Ltd. which has subsequently been merged into the Raza Buland Sugar Co. Ltd. The reference relates to the assessment year 1953-54. The questions which have been referred to this court are the following :
'1. Whether, on the facts and in the circumstances of the case, the assessed is entitled to full benefit of extra shift allowance
2. Whether, on the facts and in the circumstances of the case the assessed-company is entitled to claim the share of loss from the unregistered firm in which it was a partner to be set off against other business income of the assessed
3. Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 10,000 out of the establishment and management expenses alleged to be pertaining to the affairs of M/s. Agricultural Company is valid in law and
4. Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 19,715 out of legal expenses is valid in law ?'
2. To take up the first question, the brief facts that are available on record are as follows :
The assessed is carrying on business in the manufacture of sugar. The sugar factory is a seasonal one. The factory of the assessed worked triple shift during the manufacturing season. The assessed claimed that it was entitled to full extra shift allowance. The ITO was, however, of opinion that since the machinery had worked extra shifts for less than 300 days, the extra shift allowance had to be calculated only at a proportion of the normal depreciation, the proportion being that of the number of days during which the machinery actually worked extra shifts to 300 days. The exact details of the number of days of extra shifts worked by the machinery are not available from the record and it appears that the ITO, the AAC and the Appellate Tribunal rejected the assessed's claim for full allowance by their orders in case of same assessed for the assessment year 1950-51. It is the correctness of this that if challenged by the first question that has been referred to s.
3. The same question arose for consideration in the case of the Raza Sugar Co. Ltd. in relation to the assessment's year 1950-51 to 1956-57 (except assessment year 1952-53). This reference was decided by the Allahabad High Court in the case of Raza Sugar Co. v. CIT : 76ITR541(All) . The court held that under r. 8 of the Indian I. T. Rules of 1922, read along with what is stated in the remarks column in the statement for purposes of granting the extra allowance for the double shift, the normal number of working days throughout the year will be taken as 300 days. For example, if a concern has worked double shift for only 100 days, the extra allowance for double shift will be 1/3rd of 50 per cent. of the normal depreciation allowance for the whole year. It was held that the rule and the statement did not support the claim of the assessed that it was entitled to just 50 per cent. of the normal depreciation for the second shift irrespective of the actual number of days during which the machinery worked. This decisions was followed by this court in its order dated mat 27, 1977, in I. T. Rs. Nos. 9 and 31 of 1969 (Raza Sugar Co. Ltd. v. CIT : 130ITR421(Delhi) ). I. T. R. No. 9/69 was a reference in the case of the Raza Sugar Co. Ltd. for the assessment year 1952-53. I. T. R. No. 31/69 was a reference for the assessment year 1952-53, in the case of Buland Sugar Co. Ltd. the present assessed. After referring to the provisions of the rule, and the decision of the Allahabad High Court in the case of Kundan Sugar Mills v. CIT : 106ITR704(All) , this court held that the assessed-companies were entitled to 50% of the normal allowance on account of double shift working and up to a maximum of 100% of the normal allowance on account of triple shift allowance, but only proportionately for the actual number of days worked. The full details regarding the amount of depreciation claimed, the number of days of working, etc., are not available. However, as the question raised is the same as in earlier years, we answer the first question referred to us in the negative and in the same manner as was done by this court in I. T. R. No. 31/69.
4. We would only like to add that all courts appear to be unanimous on this issue. In addition to the two cases referred to earlier, our attention has also been drawn to the decisions in Ganesh Sugar Mills Ltd. v. CIT : 73ITR395(Cal) , Shadi Lal Sugar and General Mills Ltd. v. CIT : 103ITR748(All) and CIT v. Khedut Sahakari Khanna Udyog Mandi : 104ITR206(Guj) , in which also the same view has been taken. The first question is, thereforee, answered accordingly.
5. In regard to the second question against the relevant facts can be briefly stated. The assessed-company and the Raza Sugar Co. Ltd. (which were separate companies during the relevant previous year but when were subsequently amalgamated to form the Raza Sugar Co. Ltd.) were equal partners in a partnership firm known as M/s. Agricultural Co. The Agricultural Co. was an unregistered firm. It had sustained a loss. The assessed claimed that its half share of the loss from this firm should be set off against its other income. This claim was rejected by the ITO, the AAC and the Appellate Tribunal following their orders in earlier years. The Tribunal has referred to an earlier decision taken by it is the case of the same assessed for the assessment year 1950-51 on this particular issue.
6. This question is also covered by the decision of this court dated May 27, 1977 in ITR Nos. 9 and 31/69 (Raza Sugar Co. Ltd. v. CIT : 130ITR421(Delhi) ) earlier referred to. This court has pointed out that the Tribunal had, in deciding the assessed's case for the assessment year 1950-51, relied upon the decision of the Supreme Court in the case of CIT v. Jadavji Narsidas & Co. : 48ITR41(SC) and that of the Patna High Court in CIT v. Gangadhar Nathmal : 60ITR790(Patna) and held that the question referred stood answered by the aforesaid decisions.
7. Mr. Bishamber Lal, learned counsel for the assessed, submits that this question requires reconsideration in view of a decision of this court in CIT v. Ram Swarup Gupta : 92ITR495(Delhi) , which has reviewed the decisions on this issue and pointed out that there was a difference of opinion between the High Courts. A partner was held entitled to adjust his share of loss from an unregistered firm of which he was partner against the profits of his individual business in his personal assessment in CIT v. Vakati Sanjeeva Setty : 46ITR755(AP) , CIT v. Jagannath Narsingdas : 55ITR128(Bom) and CIT v. Jethalal Zaverchand Patiala : 61ITR357(Guj) . However, the contrary view was taken by the Patna High Court in CIT v. Gangadhar Nathmal : 60ITR790(Patna) , the Allahabad High Court in Raza Sugar Co. v. CIT : 76ITR541(All) and by the Mysore High Court in B. Chickotappa v. ITO : 81ITR431(KAR) . In a case before the Calcutta High Court, Ranjit Kr. Banerjee v. CIT  69 ITR 32, deciding against a set-off, the facts were difference because what the assessed sought was a set-off of his share in the loss of the unregistered firm against this income from other sources like salary, house property and the dividends. (We may add that the Bombay High Court in CIT v. Hirani Construction Co. 0065/1964 : 60ITR599(Bom) and the Calcutta High Court in Ganga Metal Refining Co. P. Ltd. v. CIT : 67ITR771(Cal) , have taken the view that a set-off is not permissible, while the Punjab & Haryana High Court in CIT v. Jishan Lal Kuthilal and the Rajasthan High Court in CIT v. Smt. Pana Devi  Tax LR 745, have taken the contrary view). After referring to this controversy and discussing the matter at length, this court came to the conclusion that the view taken by the Bombay and Gujarat High Court was preferable and that the assessed should be held entitled to have his share of loss in a business carried on by an unregistered firm of which he is a partner set off against the profits of his personal business for the same assessment year.
8. It will be seen from the above that this court has apparently taken contrary views on the above issue. While deciding ITO Nos. 9 & 31/69 [Raza Sugar Co. Ltd. v. CIT : 130ITR421(Delhi) ], the attention of this court does not appear to have been invited to the earlier decision in CIT v. Ram Swarup Gupta : 92ITR495(Delhi) . In view of this and in view of the conflict of other judicial decisions referred to above, we would normally have considered referring this issue to a larger Bench but this course is rendered unnecessary for the reason that the question appears to be concluded against the assessed for the following reason. The same question came up for consideration in the case of assessed-company (in relation to the assessment years 1954-55 to 1956-57) before the Allahabad High Court which constituted a Full Bench to hear the case. The decision of the Full Bench is Raza Buland Sugar Co. Ltd. v. CIT : 102ITR451(All) . The Full Bench of the Allahabad High Court did not resolve the conflict of opinion (though one of the learned judges, Gulati J., was inclined to the view that the set-off was permissible) but answered the after hearing appellant's counsel at length, dismissed petitions for special leave to appeal preferred to it from the decision of the Allahabad High Court in Raza Sugar Co.'s case : 76ITR541(All) . It may also be mentioned that the Allahabad High Court had granted a certificate of fitness to appeal against its judgment in the Raza Sugar case but without mentioning reasons were necessary to be given in support of the certificate issued and where no such reasons were given, the appeals would not be maintainable. So that the assessed moved special leave petitions before the Supreme Court and it was after having heard 'the assessed's counsel at length' that the petitions were dismissed. In the opinion of the Full Bench, it was thereforee, 'proper to presume that the special leave petitions were dismissed because they locked merit'. Thus, we have the position that the question at issue has been answered against the assessed by this court for the assessment year 1952-53 and by a Full Bench of the Allahabad High Court for the assessment years 1954-55 to 1956-57. In these circumstances and in view of the Supreme Court having refused leave to appeal in the above circumstances against the judgment which had followed Jadavji Narsidas & Co. : 48ITR41(SC) , we are of the opinion that a reference to a Full Bench is unnecessary and that the second question referred to us should be answered in the negative and against the assessed.
9. The facts relating to the third question are as follows : We have already referred to the fact that the present assessed and Raza Sugar Co. Ltd. were, during the previous year, partners in the firm of Agricultural Co. which was a separate unregistered firm. The work of the Agricultural Co. was attended to by some of the employees of the assessed-company and the Raza Sugar Co. Ltd. In other words, the staff which rendered service to the Agricultural Company and to the business of the assessed-company were common. The ITO was of opinion, thereforee, that a portion of the establishment expenses incurred by the assessed pertained to the business of the unregistered firm. He attributed 2 1/2% of the total management expenses as attributable to the services rendered by the staff of the assessed-company to the Agricultural Co. This worked out to Rs. 10,000 which was disallowed by the ITO. This disallowance was confirmed by the AAC and the Appellate Tribunal. The Tribunal has pointed out that, to the extent the assessed had incurred expenditure for the running of the Agricultural Co. which was a separate entity, it could not be said to be expenditure incurred for the purposes of the assessed's business and, thereforee, a disallowance was called for and that the amount disallowed was also reasonable. We see nothing wrong in this conclusion of the Tribunal. It has no doubt been held in some cases that where an assessed is running a business and expenses are incurred for the purposes of that business, the mere fact that a section of the activities might result in income which is not taxable would not justify the disallowance of expenditure incurred by the assessed for the purposes of its business. The present case, however, is totally different. This is a case where a portion of the expenditure incurred by the assessed is in relation to the business of another assessed. It is clear that the assessed is entitled to a deduction only in respect of expenditure incurred by it for the purposes of its business but not expenditure incurred for the purposes of the business of another assessed. There is nothing to show that the salary paid to the common staff was only in respect of the services rendered by them to the assessed and that they, in effect, rendered services free to the Agricultural Company. A disallowance of a portion of the expenses attributable to the management of the affairs of the Agricultural Co. was, thereforee, justified. We find that this question also arose in a narrower context in I. T. R. Nos. 9 and 31 of 1969 [(Raza Sugar Co. Ltd. v. CIT : 130ITR421(Delhi) ], earlier referred to. It was found that the assessed-companies maintained a hospital jointly. But it was found that portion of the expenses related to the staff on the Matkhera farm which was run by the Agricultural Co. This court held that a portion of the expenses pertaining to Matkhera farm was rightly disallowed. We have, thereforee, no hesitation in answering the third question in the affirmative and against the assessed.
10. The last question pertains to the disallowance of Rs. 19,715 out of legal expenses. The ITO found that these expenses had been incurred by the assessed for defending proceedings initiated by certain shareholders of the company seeking an injunction restraining the company from proceeding to distribute a dividend in spice on the terms of its resolution dated January 16, 1952. The ITO disallowed the expenses on the ground that the facts and circumstances were identical with those that were considered in the case of Raza Sugar Co. Ltd. His opinion was that the expenses were not connected with the business of the company and were not, thereforee, allowable expenses. The AAC pointed out that the expenditure related to the management of the affairs of the company and had nothing to do with the day to day running of the business. He was of opinion that the expenses were not connected with or incidental to the business carried on by the appellant and were, thereforee, disallowable. The Appellate Tribunal on further appeal also held, following its decision in Raza Sugar Co. Ltd., that the expenses had been rightly disallowed. The Tribunal distinguishing the decision of the Bombay High Court in All India Reporter Ltd. v. CIT : 49ITR196(Bom) , relied upon for the assessed, held that the dispute in the present case related only to the distribution of the dividends which could not be said to affect the running or earning of the profits of the business and, thereforee, the expenditure was rightly disallowed.
11. In our opinion the view taken by the Tribunal is correct. The legal expenses in question cannot be described as having been laid out wholly and exclusively for the purposes of the business carried on by the company. The expenses were not incurred by the company in carrying on the business and earning profits there from. The dispute in the present case, did not relate to any aspect of the carrying on of business or earning of profits by the company. It was also not an expenditure incurred by the company with a view to preserve its assets or defend itself so as to be in a position to carry on the business better or earn more profits. The company having made profits decided to distribute a dividend. Under the law, the dividend could be in cash or in specie. The question was whether the dividends in specie were rightly distributed by the company or not. In other words, the dispute between the shareholders who filed the suit and the company related to an aspect of the proprietorship of the business and the 'sharing' of profits there from after it was earned. The expenditure is akin to that in a litigation between the partners of the firm regarding their sharing profits. This has nothing to do with the carrying on of the business and is not incidental to it. Clerk L. J., in Archibald Thomson Black & Co. Ltd. v. Batty  7 TC 158, points out the distinction between 'a disbursement made for the purposes of the trade', which in allowable, and a disbursement made 'for the purpose of distributing the profits of its trade after these profits have been earned', which is not. We are, thereforee, of opinion that the legal expenditure was rightly disallowed and answer the fourth question in the affirmative and against the assessed.
12. To sum up, the questions referred to us are answered as follows :
(1) in the negative and against the assessed;
(2) in the negative and against the assessed;
(3) in the affirmative and against the assessed; and
(4) in the affirmative and against the assessed.
13. However, having regard to the circumstances of the case, we make no order as to costs.