Judgment

HEGDE, J.: This appeal arises from the decision of the High Court of Patna in a reference under S. 66 (1) of the Indian Income-tax Act,1922 (to be hereinafter referred to as the Act). In that reference several questions of law were referred to the High Court for its opinion. In this appeal we are concerned with only one of those questions and that question is:

"Whether on the facts and circumstances of the case the Tribunal was justified in holding that litigation expenses of Rs.1,29,994/- incurred by the assessee for the assessment year 1951-52 constitute expenditure laid out wholly and exclusively for the purpose of the assessee s business?"

2. The relevant facts as found by the tribunal may now be briefly stated. The litigation expenses in question relate to the protracted litigation in respect of Murli Hills. Those Hills were owned by the State of Bihar. On April 1, 1928, the State Government gave a lease of those Hills to Kutchwar Lime Company for 20 years for the purpose of quarrying limestone therein. In the lease deed entered into between the parties, there was a clause preventing the lessee from assigning its rights to any third party without the consent of the lessor. In January 1933, Kutchwar Lime Co. went into voluntary liquidation and the liquidators assigned the leasehold right to Subodh Gopal Bose in September 1933 without the permission of the State Government. The assignee took possession of the property on March 9, 1933 but was stopped from working the quarry by the Government. The Government forfeited the lease of the Kutchwar Lime Company on March 23, 1933 and re-entered into possession. The Government granted a fresh lease of those Hills to Kalyanpur Lime Company for a period of 20 years with effect from April, 1934. On September 24, 1934 the Kutchwar Lime Co. sued the Government for a declaration that the lease granted to it in 1928 had not been validly forfeited and for an injunction restraining the respondent from granting Murli Hills on lease to anyone else. The suit was decreed by the High Court on February 7, 1936 and the decree was affirmed by the Privy Council on November 19,1937. The Kalyanpur Lime Co. vacated the quarry in April 1936 after the Kutchwar Lime Company started contempt proceedings. Kutchwar Lime Company got possession of the Murli Hills and remained in possession until the lease expired on March 31, 1948. The Government then reentered in to possession. Thereafter Kalvanpur Lime Company repeatedly asked the Government to execute the lease as agreed to by it in 1934. The Government refused to do so and informed the Kalyanpur Lime Company on June 2, 1949 that the Government has decided to lease Murli Hills to the assessee. The Government leased the Murli Hills to the assessee for one year from September 22, 1949 to September 22, 1950. Thereafter the Government appointed the assessee as the agent of the Government for working in the quarry with an understanding that the Murli Hills will be leased out to the assessee if the Government succeeds in the litigation. When the assessee company was in possession of the Murli Hills as an agent of the Government, the Kalyanpur Lime Company filed a suit for specific performance. In the alternative it claimed damages. In that suit the Kalyanpur Lime Company impleaded the State of Bihar as well as the assessee as defendants. It is necessary to remember that in that suit a claim for damages was also made in the alternative. That suit was resisted by the State Government as well as by the assessee. That suit was dismissed by the High Court. The appeal of the Kalyanpur Lime Company was allowed by this Court and the suit decreed against both the defendants. But as by that time the term of the lease agreed upon between the State Government and the Kalyanpur Lime Company had come to an end this Court instead of granting a decree for specific performance granted a decree for damages. Under that decree, the assessee company was also made liable to pay