Expenditure incurred in prosecuting a civil proceeding relating to the business of an assessee is admissible as expenditure laid out wholly and exclusively for the purpose of the business under S. 10 (2) (xv) of the Indian Income-tax Act, 1922, even if the proceeding is decided against the assessee.

Headnote:
INCOME TAX - Deduction - Expenditure incurred in prosecuting civil proceeding relating to business - Admissibility - S. 10 (2) (xv) of the Indian Income-tax Act, 1922.
Fact of the Case:

The assessee-company, engaged in cotton spinning and weaving, was prohibited from selling or delivering yarn except to specified persons under the Cotton Cloth and Yarn (Control) Order, 1945. Despite the prohibition, the company continued to deliver yarn to weavers outside the mill premises for conversion into cloth. The yarn so delivered was seized by the Provincial Textile Commissioner. The company filed a petition under S. 45 of the Specific Relief Act, 1877, seeking a writ of mandamus to restrain the Commissioner from seizing the yarn and to restore the yarn already seized. The petition was dismissed by the High Court and the dismissal was upheld by the Privy Council. The company claimed deduction under S. 10 (2) (xv) of the Indian Income-tax Act, 1922, for the expenses incurred in prosecuting the proceedings under S. 45 of the Specific Relief Act.
Finding of the Court:

The Supreme Court held that the expenditure incurred by the company in prosecuting the civil proceeding relating to its business was admissible as expenditure laid out wholly and exclusively for the purpose of the business under S. 10 (2) (xv) of the Indian Income-tax Act, 1922, even though the proceeding was decided against the company.
Issues: Whether the expenditure incurred by the company in prosecuting the civil proceeding relating to its business was admissible as expenditure laid out wholly and exclusively for the purpose of the business under S. 10 (2) (xv) of the Indian Income-tax Act, 1922.
Ratio Decidendi: The Supreme Court held that expenditure incurred in prosecuting a civil proceeding relating to the business of an assessee is admissible as expenditure laid out wholly and exclusively for the purpose of the business even if the proceeding is decided against the assessee. The Court observed that the object of the petition filed by the company was to secure a declaration that the order, dated February 20, 1946 Insofar as it sought to put restrictions upon the right of the Company to carry on its business in the manner in which it was accustomed to do was unauthorized and to prevent enforcement of that order: thereby the Company was seeking to obtain an order from the Court enabling the business to be carried on without interference. Expenditure incurred in that behalf would without doubt be expenditure laid out wholly and exclusively for the purpose of the business of the Company.
Final Decision: The appeals were allowed and the question referred was answered in the affirmative. The appellant-Company was entitled to its costs in this Court and the High Court.

Judgment

SHAH, J. : Sree Meenakshi Mills Ltd. - a company incorporated under the Indian Companies Act with its registered office at Madurai carries on business of cotton spinning and weaving. In the premises of the factory of the Company there are installed 80 handlooms. These handlooms were found inadequate to weave the yarn produced by the factory and a part of the yarn produced was distributed to weavers outside the factory who were engaged by the Company to weave the yarn into cloth. Under Cl. 18-B of the Cotton Cloth and Yarn (Control) Order, 1945, issued by the Government of India, the Textile Commissioner was authorized to direct any manufacturer or dealer or any class of manufacturers or dealers, inter alia, not to sell or deliver any yarn or cloth of specified description except to such person or persons and subject to such conditions as the Textile Commissioner may specify. On February 7, 1946, the Textile Commissioner issued an order directing the Company not to sell or deliver any yarn manufactured by the Company except to such person or persons as the Textile Commissioner may specify. It was recited in the order that "nothing in this Order shall apply to a sale or delivery made, in pursuance of clause 18-A of the said order, to any dealer in yarn not engaged in the production of cloth on handlooms or powerlooms." The Company addressed a letter on February 13, 1946 to the Textile Commissioner submitting that the prohibition in general terms was ultra vires the authority conferred by the Cotton Cloth and Yarn (Control) Order. The Company continued notwithstanding the prohibition to deliver yarn to weavers and did so till February 20, 1946. This yarn was seized under the orders of the Textile Commissioner. On February 20, 1946, the Provincial Textile Commissioner purporting to act in exercise of authority conferred upon him by a notification issued by the Government of India, issued an order addressed to the Company that :

"You should accordingly confine your delivery to the categories of persons notified below :-

(a) Licensed yarn dealers (in accordance with the said Cl. 18-A of the Control Order).

(b) to consumers who purchased yarn directly from you during the basic period 1940-42 (in accordance with my circular letter dated 4th January 1946 referred to above).

"NOTE :- Any other delivery of yarn by you which is not covered by a special order or permission of the Textile Control Authorities will accordingly be a contravention of the Textile Commissioner s order under clause 18-B referred to above."After this order was issued, the Company did not deliver any yarn to weavers.

2. On March 4, 1946 the Company filed a petition for a writ of mandamus in the High Court of Madras under S. 45 of the Specific Relief Act praying for an order directing the Provincial Textile Commissioner, Madras to desist from seizing the yarn supplied to the weavers at or around Madura and Rajapalayam for the purpose of converting the yarn belonging to the Company into cloth; to restore to the Company or to direct the Provincial Textile Commissioner and his subordinates to restore the yarn already seized; and to forbear from seizing or to direct the subordinates of the Provincial Textile Commissioner to forbear from seizing the yarn that may be entrusted to the weavers by the Company in the usual course of business according to the practice already obtaining for conversion into cloth. This petition was dismissed by Kunhi Raman, J. and the order of dismissal was confirmed in appeal by the High Court. The matter was then carried in appeal to the Privy Council. The Judicial Committee dismissed the appeal filed by the Company. They held, agreeing with the High Court, that the expression "deliver" in Cl. 18-B sub-cl. l (b) of the Cotton Cloth and Yarn (Control) Order, 1945, is used in its ordinary broad sense of handing over possession, as di

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