DIPAK KUMAR SEN, J. ( 1 ) THE material facts relevant to this reference are, inter alia, as follows : turner Morrison and Co. Ltd. , the assessee, is a 100% subsidiary of Hungerford Investment Trust Ltd. , a non-resident company. The assessee entered info an agreement in writing with one Messrs Geoffrey Turner and Co. Ltd. , another non-resident company incorporated in the U. K. , on July 11, 1961, under which the assessee employed the said foreign company as its agent in the United Kingdom and other parts of Europe for the purposes of the assessee's business in India. The service to be rendered by the said foreign company as agent of the assessee were set out in the said agreement in writing. The agreement provided that the agent would receive from the assessee as remuneration in respect of the services rendered in terms of the said agreement an annual fee at the rate of 12,000 per annum to be paid by the assessee to the agent in sterling in London in four equal quarterly instalments each year. The agreement further provided that the same would continue for a period of five years from January 1, 1961. ( 2 ) IN terms of the aforesaid agreement, the assessee paid to its foreign agent 12,000 in the calendar year 1961. ( 3 ) THE assessee was assessed to income-tax for the assessment year 1962-63, the relevant accounting period ending on December 31, 1961. In the assessment proceedings, the assessee claimed a deduction of the said amount of 12,000 paid to its London agent under the said agreement. It was found that during the relevant period, the arrangement between the assessee and its London agent was that the assessee would also pay to its agent 4,000 from Pakistan. Though the assessee actually got permission from the Reserve Bank of India to remit 12,000 from India, the assessed, in fact, did not obtain permission to remit 4,000 from Pakistan. It was found further that during the relevant period, the assessee received from its London agent three motor vehicles being Rover cars of the value of 4,000 which was arranged for by the said London agents of the assessee in violation of the Foreign Exchange Regulation Act. Proceedings were taken by the Directorate of Enforcement against the assessee and a fine was levied. Proceedings were taken by the Directorate of Enforcement against the assessee and a fine was levied. ( 4 ) FOR the reasons as aforesaid, in respect of the amount of 12,000 claimed by way of deduction, 4,000 was disallowed. The disallowance was upheld by the Appellate Assistant Commissioner as also the Income-tax Appellate Tribunal. ( 5 ) THE present reference relates to the assessment year 1963-64, the relevant accounting year ending on December 31, 1962. The Income-tax Officer, following the assessment in the previous assessment year 1962-63, did not allow the deduction of 12,000 paid by the assessee to its London agent also in the subsequent year and disallowed an amount of 4,000. He held that the said amount of 4,000 had been paid on extra-commercial considerations. The sum was added back to the total income of the assessee. ( 6 ) THE Income-tax Officer also disallowed the deduction of an amount of Rs. 8,482 which the assessee claimed to have spent in contesting the income-tax proceedings as the agent of Hungerford Investment Trust Ltd. , the parent company of the assessee. The Income-tax Officer held that the said expense was not incurred for the purpose of the assessee and was not connected with the business activities of the assessee. The same amount was added back. ( 7 ) BEING aggrieved, the assessee preferred an appeal against the assessment before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that during the relevant year, there was no remittance in cash from the London agent to the assessee nor were any goods sent by the London agent to the assessee against remittance of 12,000. He found that the facts in the subsequent years were different from the facts of the earlier year and, therefore, there was no justification to disallow the deduction 4,000 as claimed. ( 8 ) THE Appellate Assistant Commissioner, however, held following a decision of this court that the expenditure incurred by the assessee to contest the income-tax proceedings of Hungerford Investment Trust Ltd. was not wholly or exclusively for the purpose of the business of the assessee and, therefore, the amount spent could not be allowed as deduction. The appeal of the assessee was, therefore, partly allowed. ( 9 ) FROM the order of the Appellate Assistant Commissioner appeals were* ' filed both by the Revenue as also the assessee to the Income-tax Appellate Tribunal. The appeal of the assessee was, therefore, partly allowed. ( 9 ) FROM the order of the Appellate Assistant Commissioner appeals were* ' filed both by the Revenue as also the assessee to the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the Revenue that from the facts found in the assessment of the assessee in the assessment year 1962-63, it appeared that the assessee as also their London agents contemplated payment of remuneration of only 8,000 and the balance 4,000 had been paid for extra-commercial considerations, and, therefore, only 8,000 could be allowed as deduction and the balance 4,000 had been rightly disallowed. ( 10 ) IT was contended on behalf of the assessee, however, that the remuneration payable to the London agent had been fixed by the agreement of 1961. The said remuneration was fixed taking into account the rise in costs and the Reserve Bank approved the payment of the said remuneration under the fresh agreement. It was contended that the entire amount of 12,000 should be allowed as a deduction and that the Appellate Assistant Commissioner had rightly deleted the disallowance of 4,000. ( 11 ) THE Accountant Member of the Tribunal, after considering the order of the Tribunal in the earlier assessment year 1962-63, held that 8,000 was a reasonable remuneration which was contemplated both by the assessee and its London agent and that in fact out of 12,000 paid in the earlier assessment year, 4,000 was intended to be utilised for import of motor vehicles by way of gifts from the London agent. He held further that in view of the finding of the Tribunal in the earlier year that 8,000 was a reasonable remuneration in the immediately preceding year, there was no reason why in the subsequent year the payment should be more than 8,000. He held that the balance, viz. , 4,000, had been paid by the assessee on extra-commercial considerations for this year also and thus the position remained the same. He, therefore, opined that the order of the Appellate Assistant Commissioner should be reversed and the order of the Income-tax Officer should be restored. He held that the balance, viz. , 4,000, had been paid by the assessee on extra-commercial considerations for this year also and thus the position remained the same. He, therefore, opined that the order of the Appellate Assistant Commissioner should be reversed and the order of the Income-tax Officer should be restored. ( 12 ) HE held further that the expenditure incurred by the assessee in the income-tax appeals of Hungerford Investment Trust Ltd. was in connection with the income-tax liability of the parent company of the assessee and to save the assets of the latter and not for the purpose of reducing the income-tax liability or saving the assets of the assessee. He held that the said expenditure had also been rightly disallowed. ( 13 ) THE Judicial Member of the Tribunal, however, differed from the Accountant Member. Considering the order of the Tribunal in the earlier assessment year 1962-63, the Judicial Member held that the Tribunal in the earlier order was concerned only with the facts in the earlier year and did not hold that the disallowance should be made in the subsequent year also. He held that the principles of res judicata were not applicable to income-tax proceedings. He distinguished the facts in the earlier assessment year from the facts in the assessment year in question and held that in the earlier year, the assessee had obtained three motor vehicles of the value of 4,000 out of the remuneration paid to the London agent. In the earlier year, penalty had been imposed by the foreign exchange authorities for violation of the rules relating to foreign exchange and in particular for obtaining permission to remit more money than what were required to be remitted to the London agent. He noted further that in the instant assessment year, there was no remittance of cash from the London agent to the assessee against the remittance of remuneration nor was there any exchange of goods. He also noted that the Reserve Bank had duly permitted the assessee to remit 12,000 to its London agent in spite of the fact that in the earlier assessment year the assessee had received back a part of the amount paid by the assessee to its London agent on account of remuneration. He also noted that the Reserve Bank had duly permitted the assessee to remit 12,000 to its London agent in spite of the fact that in the earlier assessment year the assessee had received back a part of the amount paid by the assessee to its London agent on account of remuneration. He held that the assessee had discharged its initial onus under Section 37 (1) of the Income-tax Act, 1961, and it was for the Revenue to adduce evidence to show that in the instant assessment year there were facts which should justify the disallowance of any part of the deduction claimed. He noted that there was no evidence that in the assessment year involved, the assessee was not under any obligation to pay to its London agent, the entire amount of 12,000 and no evidence had been found by the Appellate Assistant Commissioner to show that any part of the remuneration paid was for extra-commercial expediency. For the reasons as aforesaid, the Judicial Member accepted the contention of the assessee. ( 14 ) BY reason of the difference of opinion between the two members, the matter was referred to a third member, the Vice-President of the Tribunal. It was held by the third member that the fact that the Reserve Bank has sanctioned payment of the remuneration of 12,000 was not a distinguishing feature for this year only. But such sanction had also been granted in respect of the earlier assessment year. He noted further that it had been found in the earlier assessment year that the agreement dated July 11, 1961, in fact, contemplated payment of a remuneration of 8,000 only and that the balance 4,000 represented consideration other than commercial. He noted that the assessee had failed to prove that the circumstances had changed in the subsequent year and that the interpretation of the agreement would be different in the subsequent year. The contention made on behalf of the assessee before the third member was also that out of the total remittance of 12,000, it may be that 8,000 related to the business of the assessee in India, but the balance 4,000 related to some other business of the assessee outside India, and even so the said amount should be allowed to be deducted. The third member did not accept this new contention of the assessee and found that the assessee has not stated categorically anywhere that only 8,000 pertained to the assessee's business in India. He agreed with the conclusion reached by the Accountant Member and the matter was ultimately decided in favour of the Revenue. ( 15 ) ON an application of the assessee under Section 256 (1) of the Income-tax Act, 1961, the following questions have been referred as questions of law arising out of its order for the opinion of this court;"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the legal expenses of Rs. 8,482 incurred by the assessee-company in connection with the income-tax appeals of its parent company, M/s. Hungerford Investment Trust Ltd. , of which it was an agent were not an admissible deduction while working out the business income ?2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that out of the remuneration of 12,000 paid to the London agents, M/s. Geoffrey Turner and Co. Ltd. , 4000 (Rs. 53,333) could not be allowed as a deduction in working out the business income ?" ( 16 ) SO far as question No. 1 is concerned, learned advocate for the assessee did not seriously press the same. It appears to us that Rs. 8,482 spent by the assessee was for the purpose of contesting the income-tax proceedings not of itself but of its parent company, Hungerford Investment Trust Ltd. , which the assessee contested as an agent. No decision was cited on behalf of the assessee as an authority to show that in such cases the expenditure incurred would be allowable as deduction for the purpose of assessment of income-tax of the agent. For the above reasons, we answer the said question in the affirmative and in favour of the Revenue. ( 17 ) ON question No. 2, learned advocate for the assessee contended that the facts in the assessment year 1963-64 involved were entirely different from the facts in the earlier assessment year 1962-63. For the above reasons, we answer the said question in the affirmative and in favour of the Revenue. ( 17 ) ON question No. 2, learned advocate for the assessee contended that the facts in the assessment year 1963-64 involved were entirely different from the facts in the earlier assessment year 1962-63. There was no allegation that the assessee in the instant assessment year had entered into any clandestine transaction with its London agent or that the assessee had received from its London agent out of the remuneration paid to the latter anything in cash or kind. The remuneration had been fixed for five years by the agreement dated July 11, 1961. The said agreement had not been found to be spurious or colourable. The Reserve Bank has duly sanctioned payment of the said remuneration which was prima facie evidence of of the fact that the said remuneration was paid by the assessee on commercial considerations. In support of his contentions, the learned advocate for the assessee cited CIT v. Wakhand and Co. Pvt. Ltd. [1967] 65 ITR 381 where the Supreme Court laid down that in applying the test of commercial expediency for determining whether expenditure was wholly and exclusively laid out for the purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue. The Supreme Court held further that it was not open to the Revenue to allow deduction of only a part of the increase in the remuneration of the executive officer of the assessee, the disallowance not being supported by any evidence. ( 18 ) LEARNED advocate for the assessee also cited J. K. Woollen Manufacturers v. CIT [1969] 72 ITR 612, where a similar proposition was laid down and reiterated by the Supreme Court. ( 19 ) LEARNED advocate for the Revenue contended to the contrary and submitted that the facts found in the earlier assessment year were relevant and cogent evidence for the subsequent year and has been rightly taken note of by the majority of the Members of the Tribunal. He submitted that the assessee had failed to adduce evidence that the entire amount of 12,000 had been spent for reasons of commercial expediency and for commercial considerations. He submitted that the assessee had failed to adduce evidence that the entire amount of 12,000 had been spent for reasons of commercial expediency and for commercial considerations. ( 20 ) ON a consideration of the facts and circumstances, the submissions made on behalf of the parties and the decisions cited, it appears to us that in the earlier assessment year 1962-63, the assessee, in fact, did not pay to its London agent the full amount of 12,000. No doubt, the money was sent, but a part of it came back to the assessee in the shape of three motor cars. On those facts, in our view, 4,000, the deduction of which was claimed, was rightly disallowed. ( 21 ) BUT in the instant assessment year, the facts are different. In this assessment year, the entire amount of 12,000 had been paid by the assessee to its London agent. This payment has not been disputed. It is also in evidence that the said payment had been made under the agreement dated July 11, 1961, the validity or legality of which has not been questioned by the Revenue. The validity of the said agreement is supported by the fact th3t the Reserve Bank of India granted permission to the assessee to pay 12,000 to its London agent. ( 22 ) IT is not clear to us, how the question, whether the entire amount of 12,000 was meant to be a remuneration for the purpose of the assessee's business in India or any part thereof was meant for the business of the assessee outside India came to be considered by the third Member. The agreement dated July 11, 1961, is clear. The agent was appointed for the purpose of the assessee's business in India and the remuneration was fixed on that basis. At no stage was it contended by the Revenue that any part of the said remuneration payable to the London agent was for the purpose of any business of the assessee outside India. It is also not clear as to on what basis the Tribunal disallowed deduction of 4,000. In the earlier assessment year, no doubt, 4,000 were disallowed as goods of the same value had been received by the assessee from its London agent. But, in the present assessment year, there was no such transaction. It is also not clear as to on what basis the Tribunal disallowed deduction of 4,000. In the earlier assessment year, no doubt, 4,000 were disallowed as goods of the same value had been received by the assessee from its London agent. But, in the present assessment year, there was no such transaction. In the event the entire amount of 12,000 was not paid to the London agent, it would be open to the London agent to recover the same from the assessee by enforcing the agreement. ( 23 ) FOR the above reasons, we accept the contentions of the assessee so far as question No. 2 is concerned. There is no evidence that any part of the said 12,000 was paid by the assessee to its London agent on extra-commercial considerations. In any event, the fixation of the amount at 4,000 for disallowance in the instant assessment year, in our view, is merely guesswork as the evidence of the earlier assessment year is entirely absent in the subsequent year. ( 24 ) FOR the above reasons, we answer question No. 2 in the negative and in favour of the assessee. There will be no order as to costs.