TaxTMI 
TaxTMI 
1966 (9) TMI 34
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....xtile Commissioner may specify. On February 7, 1946, the Textile Commissioner issued an order directing the company not to sell or deliver any yarn manufactured by the company except to such person or persons as the Textile Commissioner may specify. It was recited in the order that " nothing in this Order shall apply to a sale or delivery made, in pursuance of clause 18A of the said order, to any dealer in yarn not engaged in the production of cloth on handlooms or powerlooms ". The company addressed a letter on February 13, 1946, to the Textile Commissioner submitting that the prohibition in general terms was ultra vires the authority conferred by the Cotton Cloth and Yarn (Control) Order. The company continued notwithstanding the prohibition to deliver yarn to weavers and did so till February 20, 1946. This yarn was seized under the orders of the Textile Commissioner. On February 20, 1946, the Provincial Textile Commissioner, purporting to act in exercise of authority conferred upon him by a notification issued by the Government of India, issued an order addressed to the company that : " You should accordingly confine your delivery to the categories of persons notified below :....
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....recting the Provincial Textile Commissioner to desist from seizing the yarn supplied to the weavers and to restore to the company the yarn already seized was incompetent as the acts in respect of which relief was asked for took place outside the limits of the ordinary original civil jurisdiction of the High Court. The company spent Rs. 20,035 in prosecuting the proceedings under section 45 of the Specific Relief Act and had also to pay Rs. 5,912 as costs to the Government of the unsuccessful appeal to the Judicial Committee. In its returns of income the company claimed deduction of the amounts of Rs. 20,035 and Rs. 5,912 for the assessment years 1949-50 and 1950-51 respectively as being expenditure wholly and exclusively laid out for the purpose of its business. The claims were rejected by the departmental authorities, and by the Income-tax Appellate Tribunal. The Tribunal then referred the following question to the High Court of Judicature at Madras : "Whether the expenses of Rs. 20,035 incurred in the assessment year 1949-50 and Rs. 5,912 (relating to the assessment year 1950-51) being the cost paid to Government as directed by the Privy Council were expenses incurred in th....
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....eding in relation to the business whose profits are under computation and cannot be affected by the final outcome of that proceeding. The proceeding started by the company was in relation to the business of the company. The company was thereby seeking relief against interference by the executive authorities in the conduct of its business in the manner in which it was being carried on previously. It was also seeking to obtain an order for restoration of its goods which were seized. It may be granted that the company was, in starting the proceeding, ill-advised. However wrong-headed, ill-advised, unduly optimistic, or over-confident in his conviction the assessee may appear in the light of the ultimate decision, expenditure in starting and prosecuting the proceeding may not be denied admission as a permissible deduction in computing the taxable income, merely because the proceeding has failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively, i.e., reasonably and honestly incurred to promote the interest of the business. Persistence of the assessee in launching the proceeding and carrying it from court to court and incurring expenditure ....
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....ted by the company was to secure protection against prosecution of the company and an order for return of the goods in respect of which an offence was committed. Expenditure incurred in prosecuting that claim was, it was said, not laid out wholly and exclusively for the purpose of the business. Reliance was placed upon the judgment of this court in H. Hirjee's case in which it was held that a person who was prosecuted for an offence under section 13 of the Hoarding and Profiteering Ordinance, 1943, on a charge of selling goods at prices higher than were reasonable, in contravention of the provisions of section 6 thereof, and a part of his stock was seized and taken away, was not entitled to claim deduction under section 10(2)(xv) of the Income-tax Act for the sums spent in defending the criminal proceedings against him because the expenditure could not be said to have been laid out and expended wholly and exclusively for the purpose of the business. But the assumption underlying the argument is not true. The Tribunal has in the statement of the case observed in paragraph 2 : " Subsequently, on 20th February, 1946, a proper order by the appropriate authority was passed and it is ....