JUDGMENT
Dr. B.P. Saraf J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal, Poona Bench, Poona, has referred the following question of law to this court for opinion :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the legal expenses incurred by the assessee in defending the appeal filed by Messrs. Bajaj Auto Ltd. in the Supreme Court challenging the order of the Company Law Board ordering the transfer of shares of Messrs. Bajaj Auto Ltd., to the assessee, were revenue expense ?”
2. The assessee is a private limited company which derives its income from the business of manufacturing auto spare parts, managing agency commission and dividend. The assessment year is 1971-72 and the accounting period is the period ended on December 31, 1970. The assessee was holding 5,852 shares of Messrs. Bajaj Auto Ltd. It acquired further shares numbering 3,643. The board of directors of Messrs. Bajaj Auto Ltd., how-ever, refused to transfer these shares and, therefore, the assessee was required to file an appeal before the Company Law Board under section 111 of the Companies Act, 1956. The Board by its order dated March 14, 1970, decided the matter in favour of the assessee. Aggrieved by the order of the Company Law Board, Messrs. Bajaj Auto Ltd., preferred an appeal before the Supreme Court which was dismissed by order dated September 4, 1970. The assessee incurred a sum of Rs. 57,498 by way of legal expenses in defending the case before the Supreme Court filed by Messrs. Bajaj Auto Ltd. The assessee claimed this amount by way of deduction from its income as according to it, it was a revenue expenditure. The claim was rejected by the Income-tax Officer on the ground that the expenditure was incurred in connection with the acquisition of a capital asset and hence the same cannot be treated as revenue in nature. Accordingly, he disallowed the claim of the assessee. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The assessee preferred an appeal before the Appellate Tribunal. It was urged before the Tribunal that the assessee had already acquired the title to the shares in question by virtue of the order of the Company Law Board and in appeal before the Supreme Court against the said order he was simply required to defend the title which has already vested in him. The contention of the Revenue before the Tribunal was that the expenditure was clearly capital in nature and as such not a permissible deduction. Reliance was also placed by the Revenue on the order of the Tribunal in the assessee’s own case for the year 1969-70 wherein the expenditure amounting to Rs. 15,086 incurred by the assessee in pursuing the same case before the Company Law Board was held to be capital in nature.
3. The Tribunal accepted the contention of the assessee and held that once the Company Law Board decided the controversy the assessee got title over the shares in question on the strength of the said decision and when an appeal was filed against this decision before the Supreme Court, the assessee, in fact, was simply defending the title which it had already acquired. According to the Tribunal the Litigation before the Supreme Court, the assessee, in fact, was simply defending the title which it had already acquired. According to the Tribunal the litigation before the Supreme Court by way of appeal was a fresh litigation and its nature was different from the one which was before the Company Law Board. The reasoning appears to be that till the Company Law Board decided the appeal to be in favour of the assessee, it had no title to the shares in question. But once the Company Law Board decided in its favour, the dispute in regard to the title stood concluded and the appeal against such order gave rise to a fresh cause of action and hence it was a fresh litigation wherein the assessee was simply defending the title which it had already acquired by the order of the Company Law Board. The Tribunal placed reliance on the decision of the Supreme Court in State of Uttar Pradesh v. Mohammad Nooh, AIR 1958 SC 86, in support of their view. The Tribunal tried to draw a distinction between the two stages of litigation, i.e., before the Company Law Board and the appeal against the order of the Board before the Supreme Court. The expenditure incurred in the former litigation, according to it, was expenditure incurred for acquisition of the title but the expenditure incurred in the later litigation, i.e., appeal before the Supreme Court, was expenditure incurred for defending the title which already got vested in the assessee. The finding of the tribunal was not accepted by the Revenue who sought for reference and at its instance the Tribunal has referred the question set out above, to this court.
4. We have heard at length counsel for the Revenue as well as counsel for the assessee. On a careful consideration of the rival submissions we find it difficult to agree with either the conclusion of the Tribunal or its reasoning. In our opinion, the Tribunal proceeded on an erroneous assumption of law that the nature of litigation in appeal before the Supreme Court was different from the one before the Company Law Board. It is well-settled that an appeal is not a fresh litigation or proceeding but merely a continuation of the original proceedings. The legal pursuit of a remedy of appeal and second appeal are really, but steps in a series of proceedings, all connected by an intrinsic unity and are to be regarded as one legal proceeding. (See Umaji Keshao Meshram v. Radhikabai, and Garikapati Veeraya v. N. Subbiah Choudhry, ). In view of this legal position, in the instant case, the appeal before the Supreme Court was, therefore, merely a continuation of the same proceedings and cannot be regarded a different proceedings as has been done by the Tribunal.
5. Reliance by the Tribunal in support of its conclusion on the decision of the Supreme Court in State of Uttar Pradesh v. Mohammad Nooh, AIR 1958 SC 86, is absolutely misplaced. This was a case where it was sought to be contended that the decree or order of the Court or Tribunal of the first instance becomes final only on the termination of all proceedings by way of an appeal or revision. It is this view which did not find favour with the Supreme Court in the aforesaid case. It was made clear by the Supreme Court that the decree or order stands and remains effective until it is reversed or modified by the appellate authority. In this view of the matter we are of the opinion that, there is no difference between the nature of the two proceedings – the proceedings before the Company Law Board and the appeal before the Supreme Court against the order of the Company Law Board. The nature of the dispute and the object of litigation remained the same. If the first proceeding before the Company Law Board was for acquiring title to the shares, the second proceeding before the Supreme Court by way of an appeal against the order passed in the first proceedings cannot be different. It was a continuation of the same. That being so, if the expenditure incurred on the first proceedings admittedly was capital expenditure, we do not find any reason to hold otherwise while dealing with the expenditure incurred in connection with the appeal before the Supreme Court in the very same matter.
6. A number of decisions were placed before us by learned counsel for the Revenue to show as to what is revenue expenditure and what is capital expenditure but in view of the clear facts of the case set out above and the admitted position that the entire expenditure was incurred in connection with the litigation for acquisition of title, we need not deal with all these decisions. In the instant case, admittedly, the assessee was not a dealer in shares. He had purchased shares and the dispute in regard to title arose at the very outset. The entire litigation which culminated in the appeal before the Supreme Court was for acquisition of title. It is not disputed that the expenditure incurred earlier in connection with the proceedings before the Company Law Board was capital in nature. The only distinction sought to be drawn is between the expenditure incurred before the Company Law Board and in appeal before the Supreme Court after the assessee had got a favourable order from the Company Law Board. We have already held that such distinction is not tenable. Hence, the expenditure in question clearly and undisputedly remains to be capital expenditure. Under the circumstances, we do not propose to discuss the various authorities wherein the principles for determination as to when the expenditure is revenue or capital in nature, have been discussed. In view of the foregoing discussion, the question referred to us is answered in the negative and in favour of the Revenue.
7. No order as to costs.