1962 (10) TMI 74 - HC - Income Tax

Income-tax Act allows deduction for payment to tax adviser for assessment proceedings.

Binodiram Balchand Versus Commissioner of Income-Tax, M.P.

The court held that the sum of Rs. 14,000 paid by the assessee to the income-tax adviser for services during assessment proceedings is a permissible ... - Issues Involved:1. Admissibility of deduction of professional fees under Section 10(2)(xv) of the Indian Income-tax Act, 1922.2. Interpretation of the expression 'for the purpose of such business, profession or vocation' in Section 10(2)(xv).3. Applicability of commercial expediency as a test for deductible expenditure.4. Relevance of judicial precedents, including decisions from the House of Lords and Indian courts.Issue-wise Detailed Analysis:1. Admissibility of Deduction of Professional Fees under Section 10(2)(xv):The primary issue is whether the sum of Rs. 14,000 spent by the assessee on professional fees for an income-tax adviser during assessment proceedings before the Income-tax Officer is an admissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer initially disallowed the deduction, reasoning that the payment related to four accounting years. However, the Appellate Assistant Commissioner disagreed with this view but still rejected the deduction on the grounds that the fees were not expended wholly and exclusively for the purpose of the assessee's business. The Income-tax Tribunal upheld this decision.2. Interpretation of the Expression 'For the Purpose of Such Business, Profession or Vocation':The court focused on interpreting the expression 'for the purpose of such business, profession or vocation' in Section 10(2)(xv). The expression is broader than 'incurred solely for the purposes of earning such profits or gains,' which was the language before the 1939 amendment. The court noted that the expenditure might be for the purpose of business even if it is not incurred for earning profits directly. This interpretation aligns with the Nagpur High Court's decision in Income-tax Appellate Tribunal v. Chhagganmal Mangilal and the Supreme Court's decision in Commissioner of Income-tax v. Jaggannath Kisonlal.3. Applicability of Commercial Expediency as a Test for Deductible Expenditure:The court applied the test of 'commercial expediency' to determine whether the expenditure was necessary for facilitating the carrying on of the business. Citing Supreme Court decisions in Commissioner of Income-tax v. Chandulal Keshavlal & Co. and Commissioner of Income-tax v. Royal Calcutta Turf Club, the court emphasized that an expenditure incurred on grounds of commercial expediency and indirectly facilitating the business qualifies as being laid out wholly and exclusively for the purpose of the business. The court concluded that the Rs. 14,000 spent by the assessee was justified on grounds of commercial expediency, as it facilitated the carrying on of the business by ensuring a reasonable and legitimate assessment of tax liability.4. Relevance of Judicial Precedents:The court discussed several judicial precedents, including the House of Lords' decision in Smith's Potato Estates Ltd. v. Bolland, which had a divided opinion on whether legal and accountancy expenses for tax disputes were deductible. The court also referred to the Bombay High Court's decision in S.D. Sharma v. Commissioner of Income-tax, which denied deduction for fees paid to an income-tax consultant in connection with proceedings for concealment of income. However, the court distinguished this case, noting that the expenses in S.D. Sharma were related to penal consequences and not incurred in the character of a trader. The court also mentioned the Madras High Court's decision in Board of Revenue v. Muniswami Chetti and Sons, which was based on the narrower language of the 1918 Act.Conclusion:The court concluded that the sum of Rs. 14,000 paid by the assessee to the income-tax adviser for services during assessment proceedings is a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The expenditure was deemed to be laid out wholly and exclusively for the purpose of the business, justified on grounds of commercial expediency. The assessee was awarded costs of the reference, with counsel's fee fixed at Rs. 150.