Judgement

 Patanjali Sastri, C.J.I. -

This is an appeal from a judgment of the High Court of Judicature at Calcutta answering a reference under S. 66-A, Income-tax Act, 1922 (hereinafter referred to as the Act) in favour of the respondent herein.

2. The respondent carries on business as selling agents of the Bengal Potteries Ltd., and he was prosecuted under S. 13, Hoarding and Profiteering Ordinance, 1943, (Ordinance No. 35 of 1943) on a charge of selling goods at Prices higher than were reasonable in contravention of the provisions of S. 6 thereof. It appears that before the prosecution was launched in August 1944, respondent s business premises were searched and a part of his stock was seized and taken away. The respondent defended the case, spending a sum of Rs. 10,895, and the prosecution ended in an acquittal on 16-2-1945. In his assessment to income-tax for the year 1945-46, the respondent claimed the deduction of the said sum of Rs. 10,895 from the profits of his business under S. 10 (2 ) (XV) of the Act. The Income-tax Officer disallowed the claim but the Appellate Assistant Commissioner allowed it, and his decision was confirmed by the Income-tax Appellate Tribunal, Calcutta Bench. Thereupon the Commissioner of Income-tax. West Bengal, applied to the Tribunal to state a case for decision by the High Court under S. 66-A of the Act, and the Tribunal accordingly referred the following question to that Court for its decision :

Whether in the circumstances of this case the Tribunal was right in holding that the sum of Rs. 10,895 spent in defending the criminal proceeding was an expenditure laid out or expended wholly and exclusively for the Purpose of business as contemplated by S.10 (2) (XV) of the Indian Income-tax Act)

3. In dismissing the appeal preferred by the Income-tax Officer, the Tribunal observed :

It may be stated straight off that it has not been established by any material that the conviction in cases like this may end in imprisonment. The question that personal liberty was likely to be jeopardised therefore will not be considered by us .. In any case, in the absence of any material in this particular case that personal liberty was likely to be jeopardised, all that we can say is that there was a chance of conviction in which the respondent might have been fined. No doubt the element of saying himself from the fine, if any, might be there, but it is so inextricably mixed up with the main purpose for the defence that we are prepared to ignore that little element. In our opinion, the defence was solely for the purpose of maintaining his name as a good businessman and also to save his stack from being under-sold if the Court held that the prices charged by the respondent were unreasonable.

4. In the order made on the reference Harries C. J. (with whom Banerjee J. concurred) remarked :

In every criminal prosecution where the matter is defended to protect the good name of a business or a professional man, the fear of possible fine or imprisonment must always be there. But the Tribunal have pointed out that this was so inextricably, mixed up with the protection of the good name of the business that it can well be found that the money spent in defence in the criminal prosecution was spent solely and exclusively for the purpose of the business. The finding is a finding of fact and is binding upon us.

The learned Judges proceeded to refer to a ruling of the Bombay High Court - J. B. Advani v. Commr. of Income-tax & E. P. Tax, A. I. R. 1950 Bom. 297 (A) - and held that the respondent satisfied both the rests laid down there as applicable in such cases: He was charged with regard to a transaction which took place in the ordinary course of business and he was charged in his capacity as a trader. "If these two rests were satisfied and the Court came to the conclusion that the primary object of incurring the expenditure was to protect the good name of business, then it could be said that the expenditure was wholly and exclusively