Expenditure incurred in defending an application by shareholders under section 153C of the Indian Companies Act, 1913, questioning the appointment of some of the directors of the assessee-company, cannot be considered as an expenditure laid out or expended wholly and exclusively for the purpose of the business of the company.

I.D.DUA, J.

1. These three income-tax references (I.T.Rs. Nos. 2, 3 and 5 of 1962) are being disposed of by the same judgment because they raise one common question, and indeed arguments have only been addressed in I.T.R. No. 5 of 1962, it being conceded at the Bar that the decision in this case would govern the other two cases as well.

2. The learned counsel for the Commissioner of Income-tax had read out to us the statement of the case from the paper-book relating to I.T.R. No. 5 of 1962 arising out of the assessment of M/s. Shiwalik Talkies Ltd., Nangal Township, for the assessment year 1953-54. The assessee is a private limited company and during the relevant accounting period ending March 31, 1953, there was litigation in the High Court among its directors. Some of the shareholders during that controversy filed an application under section 153C of the Indian Companies Act, 1913 , questioning the appointment of some of the directors of the assessee-company. It is observed in the statement of the case that the learned counsel for assessee attempted to point out to the Income-tax Appellate Tribunal (Delhi Bench "B") that an application for appointment of a receiver had also been field in the main petition, but the Tribunal found nothing on its records on which this assertion could be upheld. At the same time, that Tribunal considered it relevant to point out that there were certain observations in its own earlier order suggesting the existence of prayer for the appointment of receiver. In this application in the High Court, the contesting parties effected a compromise agreement in 1954. In the assessment proceedings in question, a sum of Rs. 551 was claimed as legal fees which included a sum of Rs, 250 stated to have been paid to Shri K. C. Malhotra as his consultation fee in connection with the aforesaid litigation. This amount was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner confirmed this order. Appeals from the three assessment years 1953-54, 1954-55 and 1955-56 were preferred by the assessee with the Appellate Tribunal which by a common order dated March 28, 1957, allowed all the three appeals with the observation that there could be no doubt that, if the receiver had been appointed, the smooth running of the company would have been affected and the company would not have been able to make profits or gains. It is in these circumstances that in pursuance of this courts order dated January 31, 1961, a statement of the case was drawn up and forward to this court by the Appellate Tribunal, the question of law referred being :

"Whether, on the facts and circumstances of the case, the legal expenses amounting to Rs. 250 could be allowed as a deduction under 10(2)(xv) of section of the Income-tax Act, 1922 ?"

3. In order to understand the precise scope of clause (xv) of section 10(2), I consider it desirable at the outset to read section 10 so far as relevant for our purpose :

"10. (1) The tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of the profits and gains of any business, profession or vocation carried on by him.

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

(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation..."

4. I considered it equally important at this stage to read, so far as relevant, section 153C added to the Indian Companies Act, 1913 , in 1951 by Act LII of 1951.

"153C. Alternative remedy to writing up in case of mismanagement or oppression. - (1) Without prejudice to any other action that may be taken, whether in pursuance of this Act or any other law for the time being in force,