Judgement

Appeal (No. 27 of 1941) from a judgment of the High Court (October 17, 1939) upon a reference made under s. 66, sub-s. 2, of the Indian Income-tax Act, 1922.

Law. Rep. 69 Ind. App. 15 ( 1941- 1942) Commissioner of I.T., Bihar and Orissa v. Maharajadhiraj

79

The following facts are taken from the judgment of the Judicial Committee. In connection with the assessment of the profits and gains of his business as a moneylender for the year 1931- 1932 the respondent claimed the deduction of Rs.2,07,018, expended in the year of account, as an allowance admissible under s. 10, sub-s. 2 (ix.), of the Indian Income-tax Act, 1922. The respondents claim was rejected by the Income-tax Officer, the Assistant Commissioner of Income-tax, and the Commissioner of Income-tax, the last of whom, at the request of the respondent, made a reference under s. 66, sub-s. 2, of the Act to the High Court of Judicature at Patna, which decided the reference in favour of the respondent by a judgment against which the present appeal has been taken by the appellant.

The relevant provisions of s. 10 of the Act are as follows " 10.—(1.) The tax shall be payable by an assessee under the "head Business in respect of the profits or gains of any "business carried on by him.

" (2.) Such profits or gains shall be computed after making "the following allowances, namely

* * * *

" (ix.) any expenditure (not being in the nature of capital "expenditure) incurred solely for the purpose of earning "such profits or gains ...."

The expenditure sought to be deducted consisted of law charges incurred during the accounting year in connection with a suit for damages brought in 1926 by Major Anthony John and others, shareholders in the Agra United Mills Limited, against the respondents father, the late Maharajadhiraj Sir Rameshwar Singh, and several other defendants, for conspiracy, collusion, misrepresentation, breach of contract, etc. During the pendency of the suit, the late Maharajadhiraj died on July 3, 1929, and the respondent and his brother were sub stituted for their father. The suit was dismissed by the Court of the Additional Subordinate Judge of Agra on February 26, 1931.

The only question in the appeal was whether the expenditure in question was "incurred solely for the purpose of earning" the profits or gains of the respondents moneylending business. The respondent had continued the moneylending business carried on by his father. The question of law which was referred to the High Court was, "Whether the cost in question "is legally a business deduction or not ? " After a scrutiny of the plaintiffs allegations in the Agra suit of 1926, and the findings of the Agra Court which led to its dismissal, the appellant stated in paras. 8 and 9 of his statement of case tinder s. 66, sub-s. 2, of the Act "8. The only connection "of the late Maharajadhiraj with the Agra United Mills Co., " Ld., was that he was a shareholder, and that he had advanced "a loan of Rs.10,00,000 to the mill. For the latter the late "Maharajadhiraj had brought a suit and obtained a decree "in 1929. The expenses incurred in this latter suit have been "allowed as expense incurred in the assessees moneylending "business. The Agra suit had no connection with any business "of the assessee. He was involved in the suit because he "happened to be a very rich man and was therefore liable to "attack by unscrupulous persons to relieve him of part of "his surplus cash.

"Opinion of the Commissioner.

" 9. On the above findings of fact, it is respectfully submitted "that the expense for defending the Agra suit was not a "business expense, that is, it was not an expense incurred for "earning any profits assessed to income-tax, and as such the "assessee is not entitled to deduct the sum as a business 111 deduction against the assessable profits."

Law. Rep. 69 Ind. App. 15 ( 1941- 1942) Commissioner of I.T., Bihar and Orissa v. Maharajadhiraj

80

On November 23, 1927, the High Court passed an order which required