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1968 Supreme(Cal) 138
HIGH COURT OF CALCUTTA
S. P. Mitra, P. Chatterjee
COMMISSIONER OF INCOME-TAX - Appellant
Versus
CALCUTTA LANDING AND SHIPPING CO. LTD. - Respondent
Income-Tax Reference 16 Of 1965
Decided On : JUNE 21, 1968
B.GUPTA, D.PAL, M.SEAL, S.MUKHERJEE
Expenses incurred for conducting proceedings before the Income-tax authorities are admissible deductions under Section 10 (2) (xv) of the Indian Income-tax Act, 1922, as they are expenses 'for the purpose of the business' in the wider sense understood by the Supreme Court.
Headnote:
INCOME TAX - DEDUCTIONS - PROFESSIONAL FEES PAID TO TAX CONSULTANTS - WHETHER ADMISSIBLE DEDUCTION UNDER SECTION 10 (2) (XV) OF THE INDIAN INCOME-TAX ACT, 1922 - HELD, YES.
Fact of the Case:
The assessee, a limited company engaged in the transport of cargo from ships berthed at the Calcutta Port, paid a consolidated fee of Rs. 2,000 per assessment year to its tax consultants for settling each year's assessment, irrespective of whether there was any appeal or not. The Income-tax Officer disallowed a portion of the fees, holding that it was not allowable as a deduction. The Appellate Assistant Commissioner agreed with the Income-tax Officer. On appeal, the Tribunal held that the entire amount of Rs. 16,000 claimed by the assessee was an admissible deduction under Section 10 (2) (xv) of the Act.
Finding of the Court:
The Tribunal was correct in holding that the sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an admissible deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Issues: Whether the sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants for their services at the consolidated rate of Rs. 2,000 per assessment year for settling each year's assessment irrespective of the fact whether there were any appeals or not, was an admissible deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922?
Ratio Decidendi: 1. Expenses incurred for conducting proceedings before the Income-tax authorities may not be apparently related to the assessee's trading activities but may be justifiably necessary for increasing the assessee's net profits or for the carrying on of the business with larger funds at the disposal of the assessee. 2. From this point of view these expenses are expenses 'for the purpose of the business' in the wider sense the Supreme Court has understood this expression. 3. The nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles; the expenditure must be incidental to the business and must be necessitated or justified by commercial expediency; it must be directly and Intimately connected with the business and must be laid out by the tax-payer in his character as a trader; and to be a permissible deduction, there must be direct and intimate connection between the expenditure and the business, i. e. , between the expenditure and the character of the assessee as a trader, and not as owner of assets, even it they are assets of the business.
Final Decision: The sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an admissible deduction under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
( 1 ) IN this Reference under Section 66 (1) of the Indian Income-tax Act, 1922, the assessee is a limited company, whose main business is transport of cargo from ships berthed at the Calcutta Port The assessment year is 1961-62. The relevant previous year ended on the 31st October, 1960. Messrs. K. C. Bose and Co. , a firm of Chartered Accountants, were the assessee's tax consultants. The assessments for the years 1948-49 to 1952-53 were reopened under Section 34 (1) (a) of the Indian Income-tax Act, 1922. At that time the original assessments for the years 1953-54 to 1959-60 were also pending. The assessee agreed to pay Messrs. K. C. Bose and Co. consolidated fees at the rate of Rs. 2,000 for each assessment year for these twelve years for settling each year's assessment irrespective of the fact whether there was any appeal or not in respect of a particular year.
( 2 ) OUT of the sum of Rs. 24,000, a sum of Rs. 8,000 was paid in the preceding year and was allowed by the Income-tax Officer as a deduction for the assessment years 1961-62; the assessee paid the balance of Rs. 16,000 and claimed the amount as a deduction under Section 10 (2) (xv) of the Act.
( 3 ) IN respect of the assessments for the years 1948-49 to 1953-54 Messrs. K. C. Bose and Co. , conducted the cases on behalf of the assessee before the Income-tax Officer, while the appeals before the Appellate Assistant Commissioner and the Tribunal were conducted by an Advocate of this Court to whom separate fees were paid.
( 4 ) FOR the assessment years 1954-55 to 1956-57 Messrs. K. C. Bose and Co. , appeared before the Income-tax Officer and also conducted the appeals filed on behalf of the assessee before the Appellate Assistant Commissioner but there were no further appeals to the Tribunal
( 5 ) WITH regard to the assessment years 1957-58 to 1959-60 Messrs. K. C. Bose and Co. conducted the cases before the Income-tax Officer and also the appeals before the Appellate Assistant Commissioner and the Tribunal.
( 6 ) THE Income-tax Officer held that as Messrs. K. C. Bose and Co. had not only appeared before the Income-Tax Officer but also appealed to the Appellate Assistant Commissioner and the Tribunal an amount of Rs. 8,000 could be estimated as apportion able to fees payable for appearing in the appeal proceedings. He held that this amount of Rs. 8,000 was not allowable as a deduction and added the amount back.
( 7 ) THE Appellate Assistant Commissioner agreed with the Income-Tax Officer and did not interfere with his decision.
( 8 ) BEFORE the Tribunal it was urged on behalf of the assessee that there was no justification for treating the fees paid for services rendered by the tax consultants before the Income-Tax Officer and those before the appellate authorities on different footing. As per terms of the agreement, a consolidated fee of Rs. 2,000 for each year had to be paid irrespective of the fact whether there was any appeal or not and whether such appeals were to be conducted by the tax consultants or by separate Advocates. Relying on the decision of the Madhya Pradesh High Court in Binodiram Balchand v. Commissioner of Income-tax, M. P. , the Tribunal held that the agreement for the payment of consolidated fees of Rs. 2,000 for each assessment year irrespective of whether there was any appeal or not was entered into by the assessee on grounds of commercial expediency. The Tribunal agreed with the assessee's contention that it was immaterial whether the fees were paid for attending the proceedings before the Income-tax Officer or before the Appellate Assistant Commissioner or before the Tribunal, Accordingly, the Tribunal held that the entire amount of Rs. 16,000 claimed by the assessee was an admissible deduction under Section 10 (2) (xv ).
( 9 ) THE following question of law arising out of the Tribunal's order has been referred to this Court:--"whether, on the facts and in the circumstances of the case, the Tribunal was correct in holdi
