# COMMISSIONER OF INCOME-TAX, WEST BENGAL v. H. HIRJEE

- **Citation:** [1953] 1 S.C.R. 714
- **Court:** Supreme Court of India
- **Decided:** 1951-01-16
- **Case number:** CIVIL APPELLH'E JURISDICTION: Civil Appeal No. 75 of 1952
- **Bench:** Patan.Jali Sastri C.J, Mukhehjea, s. R. DAS, Ghulam Hasan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-west-bengal-v-h-hirjee-189
- **Pages:** 6

## Headnote

Indian Income-tax Act (XI of 1922), s. 10 (2) (xv)-Business
expenditure-Expenses incurred IYy businessman in defending
against criminal prosectltion for offence under Hoarding and Profiteering Act-Finding of fact-When final.
The respondent who c""ried on business was prosecuted under
s. 13 of the Hoarding and Profiteering Ordinance of 1943 on a
charge of selling goods at an unreasonable price.
He was finally
acquitted and claimed in his assessment for a subsequent year
that the suni of Rs. 10,895 which he had spent in defending himself against the charge should be deducted from his income under
s. 10(2)(xv) of the Income-tax Act as "expenditure laid out or expended wholly and exclusively for purposes of the business". The
Appellate •rribunal held that in the absence of any evidence that
personal liberty was likely to be jeopardised there was only a
chance of his being fined, that the object of saving himself from
fine was so inext~icably mixed with the main purpose of the
defence which was solely for the purpose of maintaining the respondent's name as a good bu3inessman a.nd also to save his stock
from being undersold, that it could be ignored, and that, therefore, the claim was allowabb under s. 10(2)(xv).
On a reference
the High Court held that tl:te finding of the Tribunal was one of
fact and was binding on it. On further appe0,l:
Held (i) that the
finding of the Tribunal was not one of fact and was not decisive of
the reference; (ii) the finding of the Tribunal was vitiated by its
refusal to consider the possibility of the prosecution ending in a
sentence of imprisonment ancl throwing on the Income-tax authorities the burden to prove that the prosecution might result in his
imprisonment ; and the finding was not therefore binding on the
Court; (iii) in any event, the expenses could not be said to be
"expenditure laid out or expended wholly and exclusively for the
purposes of the business" withins. 10(2)(xv) of the Act.
Legal expenses incurred in civil litigation arising out of
matters incidental to the carrying on of a business stand an a
different :footing as in such a case no question could arise as to the
primar.y or secondary purpose for which the expenses could be
said to have been incurred.
The deductibility of such expenses under s. 10 (2) (xv) must
depend on the nature and purpose of the legal proceeding and not
..
S.C.R.
SUPREME COURT REPORTS
715
on the final outcome of it and a distinction cannot therefore be
drawn between expenses of a successful and unsuccessful defence
1958
for purposes of s. 10 (2) (xv).
Commissioner of
J.B. Advani v. Commissioner of Income-tax ([1950] 18 I.T.R·
557) referred to. Commissioner of Income-tax v. Maharajadhirnj
of Darbhanga ([1942] L. R. 69 I.A. 15) distinguished.
CIVIL APPELLH'E JURISDICTION:
Civil Appeal
No. 75 of 1952.
Appeal from the Judgment ·aud Order dated the
16th January, 1951, of the High Court of Judicature
at Calcutta (Harries C.J. and Banerjee J.) in Incometax Reference No. 46 of 1950.
C. K. Daphtary, Solicitor-General for India (G. N.
Joshi, with him) for the appellant.
N. C. Chatterjee (P. K. Sen Gupta, with him) for
the respondent.
1953.
April 17.
The Judgment of the Court was
delivered by
PATANJALI SAsTRI C.J.-This is an appeal from a
judgment of the High Court of Judicature at Calcutta answering a reference under section 66-A of the
Indian Income-tax Act, 1922 (hereinafter referred to
as the Act) in favour of the respondent herein.
The respondent carries on business as selling agents
of the Bengal Potteries Ltd., and he was prosecuted
under section 13 of the Hoarding and Profiteering
Ordinance, 1943, (Ordinance No. XXXV of 1943) on a
charge of selling goods at prices higher than were
reasonable in contravention of the provisions of section 6 thereof .. It appears that before the prosecution
was launched in August, 1944, respondent's business
premises were searched and a part of his stock was
seized and taken away. The respondent defended the
case, spending a su

## Text

1958
April 17.
•
714
SUPREME COURT REPORTS
(1953]
COMMISSIONER OF INCOME-TAX,
WEST BENGAL
v.
H. HIRJEE.
[PATAN.JALI SASTRI C.J., MUKHEHJEA, s. R. DAS
and GHULAM HASAN JJ.]
Indian Income-tax Act (XI of 1922), s. 10 (2) (xv)-Business
expenditure-Expenses incurred IYy businessman in defending
against criminal prosectltion for offence under Hoarding and Profiteering Act-Finding of fact-When final.
The respondent who c""ried on business was prosecuted under
s. 13 of the Hoarding and Profiteering Ordinance of 1943 on a
charge of selling goods at an unreasonable price.
He was finally
acquitted and claimed in his assessment for a subsequent year
that the suni of Rs. 10,895 which he had spent in defending himself against the charge should be deducted from his income under
s. 10(2)(xv) of the Income-tax Act as "expenditure laid out or expended wholly and exclusively for purposes of the business". The
Appellate •rribunal held that in the absence of any evidence that
personal liberty was likely to be jeopardised there was only a
chance of his being fined, that the object of saving himself from
fine was so inext~icably mixed with the main purpose of the
defence which was solely for the purpose of maintaining the respondent's name as a good bu3inessman a.nd also to save his stock
from being undersold, that it could be ignored, and that, therefore, the claim was allowabb under s. 10(2)(xv).
On a reference
the High Court held that tl:te finding of the Tribunal was one of
fact and was binding on it. On further appe0,l:
Held (i) that the
finding of the Tribunal was not one of fact and was not decisive of
the reference; (ii) the finding of the Tribunal was vitiated by its
refusal to consider the possibility of the prosecution ending in a
sentence of imprisonment ancl throwing on the Income-tax authorities the burden to prove that the prosecution might result in his
imprisonment ; and the finding was not therefore binding on the
Court; (iii) in any event, the expenses could not be said to be
"expenditure laid out or expended wholly and exclusively for the
purposes of the business" withins. 10(2)(xv) of the Act.
Legal expenses incurred in civil litigation arising out of
matters incidental to the carrying on of a business stand an a
different :footing as in such a case no question could arise as to the
primar.y or secondary purpose for which the expenses could be
said to have been incurred.
The deductibility of such expenses under s. 10 (2) (xv) must
depend on the nature and purpose of the legal proceeding and not
..
S.C.R.
SUPREME COURT REPORTS
715
on the final outcome of it and a distinction cannot therefore be
drawn between expenses of a successful and unsuccessful defence
1958
for purposes of s. 10 (2) (xv).
Commissioner of
J.B. Advani v. Commissioner of Income-tax ([1950] 18 I.T.R·
557) referred to. Commissioner of Income-tax v. Maharajadhirnj
of Darbhanga ([1942] L. R. 69 I.A. 15) distinguished.
CIVIL APPELLH'E JURISDICTION:
Civil Appeal
No. 75 of 1952.
Appeal from the Judgment ·aud Order dated the
16th January, 1951, of the High Court of Judicature
at Calcutta (Harries C.J. and Banerjee J.) in Incometax Reference No. 46 of 1950.
C. K. Daphtary, Solicitor-General for India (G. N.
Joshi, with him) for the appellant.
N. C. Chatterjee (P. K. Sen Gupta, with him) for
the respondent.
1953.
April 17.
The Judgment of the Court was
delivered by
PATANJALI SAsTRI C.J.-This is an appeal from a
judgment of the High Court of Judicature at Calcutta answering a reference under section 66-A of the
Indian Income-tax Act, 1922 (hereinafter referred to
as the Act) in favour of the respondent herein.
The respondent carries on business as selling agents
of the Bengal Potteries Ltd., and he was prosecuted
under section 13 of the Hoarding and Profiteering
Ordinance, 1943, (Ordinance No. XXXV of 1943) on a
charge of selling goods at prices higher than were
reasonable in contravention of the provisions of section 6 thereof .. It appears that before the prosecution
was launched in August, 1944, respondent's business
premises were searched and a part of his stock was
seized and taken away. The respondent defended the
case, spending a sum of Rs. 10,895, and the prosecution ended in an acquittal on February 16, 1945. In
bis assessment to income-tax for the year 1945-46,
the respondent claimed the deduction of the said sum
of Rs. 10,895 from the profits of his business under
section 10(2) (xv) of the Act. The Income-tax Officer
93
I1ico11ie-tax,
Weat Bengal
v.
H. Hirjee.
716
8UPREME COUR'l' REPORTS
(1953]
w;s
disallowed the claim but the Appellate Assistant Come
.-.
1missioner allowed it, and his decision was confirmed
· ommimonor o
h
I
A
II
'T 'b
j
C J
Iicom..tax
by t e
ncome-tax
ppe ate
n una,
a cutta
U:est Beng~l Bench. Thereupon, the Commissioner of Iucome-tax,
v.
West Bengal, applied to the Tribunal to state a case
H. Hirjeo.
for decision by the High Court under section 66-A of
the Act, and the Tribunal accordingly referred the
Patanjali
·
·
h
C
f
· d · ·
Bastri c. J. followmg question to~ at
ourt or its ec1s10n :-
Whether in the circumstances of this case the
Tribunal was rig ht in holding that the sum of
Rs.10,895 spent in defending the criminal proceeding
was an expenditure laid out or expended wholly and
exclusively for the purpose of business as contemplated by section 10(2) (xv) of the Indian Iucome-tax
Act?
In dismissing the appeal preferred by the Incometax Officer, the Tribunal observed:
"It may be stated straight off that it has not been
established by any material that the conviction in
caseo like this may end in imprisonment. 'The question that personal liberty was likely to be jeopardised
therefore will not be considered by us .................. In
any case, in the absence of any material in this particular ca~e that personal liberty was likely to be
jeopardised, all that we can say is that there was a
chance of conviction in which the respondent might
have been fined.
No doubt, the element of saving
himself from the fine, if any, might be there, but it is
so inextricably mixed up with the main purpose for
the defence that we are prepared to ignore that little
element.
In our opinion, the defence was solely for
the purpose of maintaining his name as a good businessman and also to save his stock from being uuderso ld if the Court held that the prices charged by the
respondent were uureasoua b le."
In the order made on the reference Harries C. J.
(with whom Banerjee J. concurred) remarked:
"In every criminal prosecution where the matter
is defended to protect the good name of a business or
a professional man, the fear of possible fine or
•
8.0.R.
SUPREME COUR'l' REPORTS
717
imprisonment must always be there. But the Tribunal
I958
have pointed out that this was so inextricably mixed 0
.-.
/
. h th
.
f h
d
f h b .
0
""
11'"'
011
"
0
up wit
e protection o t e goo· name o t e us1Incom•-t••
ness that it can well be found that the money spent w.,t Beng~l
in defence in the criminal prosecution was spent
v.
solely and exclusively for the purpose of the business.
H. HirJee.
The finding is a finding of fact and is binding upon
Patanjali
us."
8 a.stri a. J.
The learned Judges proceeded to refer to a ruling
of the Bombay High Court-J. B. Advani v. Commissioner of Income-tax(')-and held that the respondent
satisfied both the tests laid down tqere as applicable
in such cases: He was charged with regard to a transaction which took place in the ordinary course of
business and he was charged in his capacity as a
trader. "If these two tests were satisfied and the Court
came to the conclusion that the primary object of incurring the expenditure was to protect the good name
of business, then it could be said that the expenditure
was wholly and exclusively for the purposes of the
business". The learned Judges accordingly answered
the question referred to them in the affirmatiye.
·They, however, granted a
certifica.te under section 66-A (2) of the Act that the· case is a fit one for
appeal to this Court.
We are unable to' agree that the finding of the
Tribunal, to which reference has been made, is binding on the Court as a finding of fact and is decisive
of the reference.
The finding of the Tribunal is
vitiated by its refusal to consider the possibility of the
criminal proceeding terminating in the conviction and
imprisonment of the respondent. ·As has been stated,
the respondent was prosecuted under section 13 which
provides :
'' Whoever contravenes the provisions of
this Ordinance shall be punishable with imprisonme.nt for a term which may extend to five years or
with fine or with both." The respondent was charged
with contravention of section 6, which by sub-sec-.
tion (1) prohibits the sale by a dealer or producer of
a.n article for a consideration which is unreasonable
(1)[1950) 18 I.T.R. 557.
718
SUPREME COURT REPORTS
[1953j
1958
· and sub-section (2) defines "unreasonable considera-
~~
tion". The fram@rs of the Ordinance thus appear to
ao~m"'•
0;" •!have regarded the offence as one calling for a deter-
;.:~m;~n~:i rent punishment in view of its anti-social character,
v.
and it is idle to suggest that it is for the Income-tax
H. Hirjee.
authorities to prove in such cases that the conviction
might result in a sentence of imprisonment and that,
:.::;tb~
1
~. in the absence of such proof, there was, at the most,
only a chance of conviction and fine.
We cannot
appreciate the remark that "even this chance of conviction and fine was so inextricably mixed up with
the main purpose of the defence that it could be
ignored." A finding arrived at on this line of reasoning is obviously vitiated by a serious misapprehension regarding the risk involved in a prosecution
under the Ordinance and it cannot be regarded as
binding on the Court in dealing with the reference.
If, as the High Court realised, in every criminal prosecution where the matter is defended to protect the
good name of a business or a professional man, the
fear of possible fine or imprisonment must always be
there, it must ordinarily be difficult for any Court to
say, that the expenses incurred for the defence, even
if they are not to be regarded as the "personal expenses" of the person a.ccused, constituted "expenditure laid out or expended wholly and exclusively
for the purposes of the business".
Learned counsel
for the respondent frankly admitted that he was not
able to find a single case in the books where the expenses incurred by a person exercising a trade or
profession in def ending a, criminal prosecution, which
arises out of his business or professional activities,
were allowed to be deducted in the assessment of his
profits or gains for income-tax purposes.
Reference was made in the course of argument to
numerous cases where legal expenses incurred in civil
litigation, arising out of matters incidental to the
carrying on of a business, were allowed as a deduction
in the computation of its profits, e.g., Commissioner of
Income-tax v. Maharajadhiraj of Darbhanga('), where
(1) (1942) L.R. 69 l.i\.. 15.
•
l
S.C.R.
SUPREME COURT REPORTS
719
the Privy Council held that law charges incurred in
1968
defending an action brought against a money-lender
-'--
for damages for conspiracy, misrepresentation and Gommi,.ion.r 01
b
h
f
d
ffi .
f
d
focon••·taoo
reac
o con tract to a vance su c1ent
un s to
we.t B•
'1
finance a company were allowable as business expendv. nga
iture.
In that class of case, ·no question could arise
H. ffirj••·
as to the primary or secondary purpose for which the
legal expenses could be said to have been incurred as
Pata,.jali
.
h
f
. .
.
SBstri a. J.
m t e case o a cnmmal prosecution where the
defence cannot easily be dissociated from the purpose
of saving the accused person from a possible con viction and imposition of the prescribed penalty.
Nor
are we satisfied, as at present advised, that a distinction drawn in the Bombay case(') between the legal
expenses of a successful and unsuccessful defence is
sound.
The deductibility of such expenses under
section 10(2)(xv) must depend on the nature and purpose of the legal proceeding in relation to the business whose profits are under computation, and cannot
be affected by the final outcome of that proceeding.
Income-tax assessments have to be made for every
year and cannot be held up until the final result of a
legal proceeding, which may pass through several
courts, is announced.
For the reasons indicated we allow the appeal and
answer the question referred in the negative.
The
appellant will be entitled to his costs both here and
in the Court below.
Appeal allowed.
Agent for the appellant: G. R. Rajadhyaksha.
Agent for the respondent: S. C. Banerjee.
(I) (1950] •8 l.!.R. 5S7·