Suhas Chandra Sen, J.
1. The facts relating to these cases have been stated by the Tribunal in its statement of case in Income-tax Reference No. 79 of 1966. In that statement of case, the Tribunal referred the following question of law to the High Court:
'Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 95,868 incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was a permissible deduction in computing the assessee's business profits under Section 10(2)(xv) of the Indian Income-tax Act, 1922 ?'
2. The facts relevant for the purposes of these cases were stated by the Supreme Court in the case of the assessee in CIT v. McLeod and Co. Ltd. : 78ITR22(SC) and the same run as follows (at pages 22 and 23):
'The matter arises thus : The respondent-assessee made a claim in its assessment for the assessment year 1952-53, inter alia, for an allowance of Rs. 95,868 as provision for extraordinary legal and other expenses in computing its profits for the purposes of income-tax. The Income-tax Officer disallowed that claim holding, inter alia, that the payments which were made to different firms of solicitors for legal advice in the matter of certain irregularities of the assessee's directors and officials whereby the funds of certain companies under the management of the assessee were depleted would not be allowed. It is not necessary to state in detail about the irregularities but it is sufficient to note that they were reported by the chairman to the respondent-company and mentioned in the report dated December 12, 1952, of Messrs. Lovelock and Lewis, auditors of the company. The profit which arose to the assessee by these transactions was in the region of Rs. 11,60,000. The sum of Rs. 95,868 consisted of four items of payments made to three firms of solicitors and expenses of two individuals who appear to have come over to India for straightening out the alleged irregularities. The allegation of the assessee was that, following legal advice, a reconstruction of the board of directors and a reorganisation of the general conduct of the business of the assessee were put through for the benefit of the company. The Appellate Assistant Commissioner disallowed the claim on the ground that the irregularities * arose in connection with the fictitious transactions indulged in by the company which were detected by its auditors after investigation. The expenses incurred as a result of such illegal activities were not the legitimate expenses of the appellant company incurred in the course of its business '. On further appeal, the Appellate Tribunal by its order dated January 18, 1958, allowed the respondent's claim for deduction accepting the assessee's plea that the expenses were incurred to protect the assessee's business as managing agents of various public companies and unless the fair name of the assessee was maintained, its business would have suffered and certain managing agencies would have been lost.'
3. The Commissioner of Income-tax thereupon applied to the Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, for a case to be stated to the High Court for reference of the following two questions oflaw :
'(1) Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the expenditure of Rs. 95,868 was wholly and exclusively incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was based on no evidence or was perverse in the accepted sense of the term ?
(2) Whether, in any event, on the facts and in the circumstances of the case, the Tribunal was right in holding that the said expenditure was allowable as a proper revenue deduction ?'
4. By the order dated February 11, 1966, the Tribunal stated a case to the Calcutta High Court and referred only the following question of law :
'Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 95,868 incurred for the purpose of maintaining the goodwill and reputation of the assessee-company was a permissible deduction in computing the assessee's profits under Section 10(2)(xv) of the Indian Income-tax Act, 1922 ?'
5. The Commissioner of Income-tax thereupon applied to the High Court under Section 66(2) of the Indian Income-tax Act, 1922, for referring the other question of law to the High Court. That application was dismissed by the Calcutta High Court. Thereupon, a further appeal was preferred to the Supreme Court and the Supreme Court observed (at pages 24 and 25) :
'It appears to us that the question framed by the Tribunal was suggestive of the answer and the grievance of the Commissioner was not ill-founded. The statement of case by the Tribunal to the High Court was far from complete. In that statement, the Tribunal, after referring to the facts found by the Income-tax Officer and the Appellate Assistant Commissioner, stated that:
'Since the major item of Rs. 58,638 pertained to the bills of M/s. Orr Dignam & Co., the Tribunal perused the detailed statements of work done by M/s. Orr Dignam & Co., in connection with straightening out of the affairs of the assessee-company. The Tribunal held that the expenditure had been incurred for the purpose of maintaining the goodwill and reputation of the assessee-company and that the expenditure had been wholly and exclusively incurred for this purpose.' The above throws no light on the nature of the work done by the named firm of solicitors. An elucidation was necessary to permit the court to take the view that there was evidence to justify the conclusion arrived at by the Tribunal.
The real complaint of the appellant before us is that the statement of facts in the case stated by the Tribunal was not complete and that certain further facts should have been incorporated therein so that the question of law which the appellant wanted the High Court to adjudicate upon could be properly gone into.'
6. Thereafter, the Tribunal made a statement of case to this court referring the two questions of law set out earlier to this court. Although there was an order directing the Tribunal to incorporate all the facts and documents pertaining to the questions which have not already been incorporated in the statement, the Tribunal failed to carry out that order. Thereupon, a further order was passed by this court directing the Tribunal to incorporate the necessary facts on March 16, 1982. The Tribunal, however, reiterated that a statement of case was forwarded to the High Court and there was no question of making another reference on the very same question.
7. The order that was passed by Dipak Kumar Sen and C.K. Banerji JJ. was as follows :
'In strict compliance with the judgment and order of the Supreme Court in the case of CIT v. McLeod and Co. : 78ITR22(SC) , we make an order in terms of prayer (a) of this petition. The Tribunal is further directed to incorporate all facts and documents pertaining to the question which have not already been incorporated in the statement. There will be no order as to costs. The Tribunal is directed to submit the statement of the case within four months from the date of service of the signed copy of this minute.'
8. The facts and documents pertaining to the question and about the nature of the work done by Orr Dignam & Co., in connection with straightening out of the affairs of the assessee-company are not before us. The Appellate Assistant Commissioner in his order has pointed out as follows :
'It is represented that these expenses had been incurred in order to protect the appellant company's business as managing agents of public companies following allegation of irregular acts by some of its directors and officials whereby the funds of several companies under its management were depleted and which, in turn, adversely affected its own income from those companies for that year. It is further represented that reconstruction of its board of directors, the appointment of a managing director and a complete reorganisation of the general conduct of its business were essential if the company was to continue as managing agents and, therefore, the advice of its legal and other advisers was sought as to how best this could be achieved. The irregularities indulged in by some of its directors are enumerated in the auditors' report. It is apparent from these that the irregularities arose in connection with the fictitious transactions indulged in by the company which were detected by its auditors after investigation. The expenses incurred as a result of such illegal activities were not the legitimate expenses of the appellant company incurred in the course of its business. They were not incidental to the business, nor were they incurred wholly and exclusively for the purposes of its business. There is, therefore, no justifiction to allow the appellants' claim.'
9. The Tribunal has held in its order which it made after the rectification under Section 35, as follows :
'It was common ground that the four items of expenditure related to the same purpose and stood on the same footing. Since the major item of Rs. 58,838 pertained to the bills of M/s. Orr Dignam & Co., we have perused the detailed statement of the work done by M/s. Orr Dignam & Co. in connection with straightening out of the affairs of the assessee-company. We are of the opinion that the expenditure has been wholly and exclusively incurred for the purpose of maintaining the goodwill andreputation of the assessee-company and the expenditure claimed is allowable as a proper revenue deduction.'
10. It appears from ground No. 3 that the payments were made against the bills of M/s. Orr Dignam Co., M/s. Sandersons and Morgans and M/s. Khaitan & Co. It also appears that a report was made by the auditors about some irregularities in the accounting on December 12, 1952. Thereafter, one of the directors, Mr. A.J. Peppercorn, wrote a letter on April 17, 1952, explaining why he did not sign the directors' report and he pointed out that he pursued the irregularities that were pointed out by the auditors. It was stated in that letter, inter alia, as follows:
'As a result of the investigations that I undertook, it was ascertained and confirmed that during 1951, certain of the transactions as recorded in the books of the various jute mills companies, baling companies and in the books of McLeod & Co. Ltd. were irregular. Some of these transactions were fictitious in that no actual transactions took place, while in other cases, although there were actual transactions, the dates on which they took place had not been correctly shown, thereby transferring profits by charging incorrect prices.
None of these transactions were reported in any form or manner to the boards of the managed companies concerned.
As a result of the steps that I took, I was able to secure from the companies that had gained by these transactions to the companies that had lost by them, refunds of all the sums involved, and the position of all companies concerned is now the same as would have been the case if these transactions had never taken place.
Full details of these transactions, in so far as they affect the jute mills companies and baling companies, have been or will be given in the auditors' report of the companies concerned.'
11. In view of the circumstances of these cases and also the facts which were brought on record, these cases are disposed of by the following direction : The Tribunal will examine the bills submitted by the firms of solicitors as to what were the expenses incurred in connection with the fictitious transactions and irregularities shown in the auditors' reports and also noted by Mr. A.J. Peppercorn in the letter dated April 17, 1952. The expenses pertaining to these irregularities and fictitious transactions will not be allowable as deductions wholly and exclusively incurred for the purpose of the companies business. The other expenses of the solicitors which were noted in the Appellate Assistant Commissioner's order, such as, expenses in connection with the appointment of the managing director or reconstruction of its board of directors, will have to be allowed. Therefore, these cases are disposed of with the direction to the Tribunal toascertain the facts relating to those matters. It would be open to the parties to adduce further evidence on these points, if necessary.
12. There will be no order as to costs.
R.N. Pyne, J.
13. I agree.