TaxTMI 
TaxTMI 
1979 (9) TMI 12
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....nd was, therefore, allowable as deduction ? " Although the Commissioner has asked for a reference of four questions, the Tribunal has referred only the question indicated above. But, in the statement of the case drawn up in para. 8, it has been stated that the question referred also embraces within it the question of allowance of litigation expenses, amounting to Rs. 2,217, which was the subject-matter of question No. 2 of the reference application filed by the Commissioner. Before we state the facts relevant for deciding the referred question, it is necessary to consider as to whether the question as referred entitles us to consider the allowance of litigation expenses which amounted to Rs. 2,217. These expenses were incurred in defendi....
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....ve to confine our answer to the question as to whether the amount of Rs. 14,250 which the assessee-firm was made liable to pay under the court's decree dated December 18, 1960, was a trading liability. The facts relevant for answering this question may now be stated. The assessment year involved in the reference is 1970-71. The relevant previous year ended on 31st March, 1969. The business which was carried on by the assessee-firm had been formerly carried on by another firm, consisting of five partners in the name and style of M/s. Hindustan Motor Cycle Works. This firm had appointed another firm, Hind Auto Engineering Company, as its sole selling agent under an agreement dated June 15, 1965. Under the terms of this agreement the sole s....
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....would have no objection to the allowability of the claim. The Tribunal interpreted cl. 4 of the agreement, dated 1st April, 1969, which was to the following effect: " That the assets and liabilities of the business hitherto carried on are taken by this firm at their book value as on 31st March, 1969. The balances of the retiring partners as on 31st March, 1969, are agreed to be retained as loan for the time being. The loan shall bear interest @ 6% per annum. " and held that this clause was comprehensive enough to saddle the assessee with the liability of the erstwhile firm qua its sole selling agents. On this view of the matter, it held in favour of the assessee. Sri Ashok Gupta appearing for the department urged that the liability....
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.... also appears that the decree passed by the civil court created a liability against the assessee, for, there is no material on record to show that it created liability against the erstwhile firm and not the assessee. This liability arose on account of the fact that the security deposit was not refunded to the sole selling agents and certain amounts of commission, etc., remained due. The interest, which was decreed and with which alone we are concerned in the present reference, obviously relates to those demands. As the assessee-firm had taken over the entire assets and liabilities of the erstwhile firm and as the suit had already been filed when the agreement of the 1st April, 1969, was reached, cl. 4 can, in the context, be interpreted so ....