Lakshmiji Sugar Mills Co. (P.) Ltd. vs Commissioner of Income Tax

Ansari, J.—The following question has been referred to this court by the Income Tax Appellate Tribunal, Delhi Bench (hereinafter referred to as "the Tribunal"), u/s 66(1) of the Indian Income Tax Act, 1922 (hereinafter referred to as " the Act,"):

"Whether, on the facts and circumstances of the case, the sum of Rs. 30,959 spent by the assessed in the criminal case against Ramji Dass, director, and the employees of the assessed-company for the offence of bribery was not incidental to the assessed''s business and was not an item of admissible deduction? "

As the question itself indicates, the amount of Rs. 30,959 represented the expenses incurred by the assessed-company during the accounting year relevant to the assessment year 1958-59, in connection with a criminal case against Ramji Dass, director, and other employees of the company. The assessed-company claimed allowance for this amount as revenue expenditure u/s 10(2)(xv) of the Act. The assessed''s claim was disallowed by the Income Tax Officer following the disallowance in respect of a similar claim of the assessed-company in the earlier assessment years 1956-57 and 1957-58. The disallowance was confirmed by the Appellate Assistant Commissioner and also by the Tribunal. The Appellate Assistant Commissioner and the Tribunal confirmed the disallowance following their orders in the earlier assessment years 1956-57 and 1957-58. The Tribunal has referred this question to this court u/s 66(1) of the Act at the instance of the assessed, as it had also referred similar questions to this court in respect of the earlier assessment years also.

By its judgment in Income Tax Reference No. 18/63, which was the assessed''s own case for the assessment year 1956-57, decided on February 17, 1967 (Lakshmiji Sugar Mills Co. Ltd. v. Commissioner of Income Tax, [1967] 66 ITR 21 , a Division Bench of this court had allowed the assessed''s claim on the ground that where a company incurred expenditure in defending an employee, such an expenditure was incurred to protect the good name of the business, the prosecution having emanated with regard to an act which took place in the ordinary course of business and, Therefore, the expenditure would be wholly and exclusively for the purpose of the business. In so holding, this court had followed the decision of the Punjab High Court in J. N. SINGH and CO. PRIVATE LTD. Vs. COMMISSIONER OF Income Tax, NEW DELHI., .. Though the amount claimed by the assessed in the present year is different from the amount claimed by the assessed in the earlier years, the rule laid down by this court in the assessed''s own case in the earlier years is applicable to the assessed''s claim for this year also. There appears to be in dispute about the actual amount of expenditure incurred by the assessed. We have, Therefore, to hold that the sum of Rs. 30,959 spent by the assessed in the criminal case against Ramji Dass and other employees of the assessed-company is allowable u/s 10(2)(xv) of the Act. The question is, Therefore, answered in the affirmative, i.e., in favor of the assessed and against the department. There shall, however, be no order as to costs.