1. NASIR ASLAM ZAHID, J.--The following question of law has been referred to us under section 66(2) of the Income-tax Act, 1922 :- "Whether the legal costs incurred in filing of suit against M. g. Dalal for recovery of Rs. 1,00,000 is legally admissible for deduction or not ?'
2. The applicant here is Messrs Cowasjee Family Funds and the respondent is the Commissioner of Income-tax, Karachi. The matter relates to the assessment year 1957-58. The relevant facts as given in the statement of the case are that an amount of Rs. 15,000 had been paid as legal expenses by the assessee in connection with filing of suit for the recovery of a loan against M. B.
3. Dalal. This expenditure was incurred in the year 1956 and was initially met by Rustam F. Cowasjee.
4. Later on an adjustment was made in the books of the assessee firm whereby this expenditure was claimed as an expenditure of the firm. It was argued before the Income-tax Tribunal on behalf of the assesses that initially the loan was given some time in 1952-53 by Messrs East and West Steamship Company to M. B. Dalai and that some time in the year 1954 this loan was taken over by the assessee and the amount of Rs. 15,000 was incurred by the assessee by .Way of legal costs to recover the loan. The Tribunal had required the assessee to explain the nature of this loan and the reasons why the expenses for its recovery had been initially borne by Rustam Cowasjee. According to the statement of the case, the assessee was not able to give any explanation in this regard and the claim failed before the Tribunal because it could not be established that the amount involved was extended for business purposes. The assessee made an application to the Tribunal for a reference under section 66 (1) to the High Court but this was refused by the Tribunal by its order dated 13-6-1963 observing that whether or not a certain expenditure is for business purposes is a question of fact to be ascertained from other facts attending on a case. According to the Tribunal, the question involved was purely a question of fact and as all these maters of fact had not been explained, the disallowance was confirmed. The assessee then approached the High Court of West Pakistan, Karachi Bench, and by order dated 26-1-1967 in income-tax Case No. 433 of 1963 it was observed by the High Court as follows :--- "After hearing the learned counsel for the parties, we are satisfied that the question which is sought to be referred is a mixed question of law and fact. If the contention of the petititioners is correct that they are doing money-lenders business, it will be for consideration whether in such circumstances it could be held that the real nature of the loan remained unexplained by the assessee."
5. A direction was given by the High Court to the Income-tax Tribunal to refer the above question under section 66(2) of the Income-tags Act. It is in these circumstances that the matter has come up before us in the present Income-tax Reference under section 66(2) of the Income-tax Act, 1922.
6. We have beard Mr. Ali Athar, learned counsel for the applicant and Mr. Shaikh Haider, learned counsel for the respondent.
2. Apparently, the contention before the High Court in Income-tax Case No. 433 of 1963, on behalf of the assessee was that the assessee firm was carrying on money-lender's business. We, however, find from the statement of the case that according to the Income-tax Tribunal there was no material before the Tribunal to verify that the assessee firm was carrying on money-lender's business. This statement of fact contained in the statement of case is to be taken as correct for the purposes of the present reference. The factual position that emerges is that before the Tribunal there was neither any material to verify whether the assessee firm was carrying on money-- lenders business nor any explanation had been given by the assessee firm about the nature of the loan in question and the reason why the expenses for its recovery were initially borne by Rustam Cowasjee and taken over by the assessed firm at a later stage. In the face of this factual position which is to be taken as correct for the purposes of the present reference, we are of the view, that the Income-tax Tribunal had taken a correct decision that the amount of Rs. 15,000 incurred in filing of suit against M.B. Dalal for the recovery of the loan in question was not legally admissible for deduction. The question referred to us in the present reference is answered accordingly.
7. There will be no order as to costs.