SUHAS CHANDRA SEN, J. ( 1 ) THE Tribunal has referred the following two questions of law under Section 256 (2) of the Income-tax Act, 1961 ("the Act") :" (1) Whether, on the facts and in the circumstances of the case, the Tribunal has been justified in law in holding that the sum of Rs. 12,365 incurred in connection with the suit against the auditor constituted an allowable deduction in computing the profits of the assessee's business. (2) Whether, on the facts and in the circumstances of the case, the Tribunal has been justified in law in holding that the payment of Rs. 50,000 made to Bomas Ltd. did not bring into existence an advantage of enduring nature and did not constitute an expenditure of capital nature. " ( 2 ) IN this case, the assessment year involved is 1963-64 for which the relevant accounting period is the year ended on December 31, 1962. ( 3 ) SO far as the first question is concerned, the issue relates to an item of Rs. 12,365 which was disallowed by the Income-tax Officer on the ground that it did not represent expenditure wholly and exclusively incurred for the purpose of the business. The employees' union had filed a suit against the auditor of the company for certain alleged irregularities in the accounts of the employees' provident fund. The auditor had been appointed by the company. The matter was taken to the Calcutta High Court by the Institute of Chartered Accountants of India for a decision. The High Court admitted the case and ultimately held in favour of the auditor. The assessee-company bore the expenses of the suit amounting to Rs. 12,365 as the auditors were appointed by the company. The Income-tax Officer rejected the assessee's plea that it constituted an allowable business expenditure. ( 4 ) IT was contended before the Appellate Assistant Commissioner that the auditor was an officer of the company under the Companies Act, 1956, and that the company was bound to indemnify him under the indemnity clauses in the articles of association of the company. It was pointed out before the Appellate Assistant Commissioner that the company was bound to defend the officer in a matter arising out of his employment and in the course of his duties. It was pointed out before the Appellate Assistant Commissioner that the company was bound to defend the officer in a matter arising out of his employment and in the course of his duties. The expenditure had to be incurred as it was the assessee's duty to protect the reputation, good name and honour of the auditor who was appointed by the company. This plea was rejected by the Appellate Assistant Commissioner who held that it was the duty of the auditor to defend himself and bear the legal charges. ( 5 ) IN the second appeal, it was urged before the Tribunal that the auditor was an officer of the company and in this connection reference was made to Section 2 (3) which specifically defines an officer to include an auditor for the purpose of certain sections of the Companies Act. One of such sections was Section 633 of the said Act which dealt with any proceedings for default, breach of duty, negligence, etc. , against any officer of the company. Considering the provisions of Section 633 and Section 2 (3) of the Companies Act, the Tribunal was of the view that the expenditure was bona fide incurred in the larger interests of the assessee's business, especially in view of the indemnity clause in the articles of association of the assessee-company. Reference was made also by the Tribunal in this connection to the decision of the Punjab High Court in the case of J. N. Singh and Co. (P.) Ltd. v. CIT [1966] 60 ITR 732. ( 6 ) THE first question does not pose any difficulty. The auditor had audited the accounts of the employees' provident fund. The primary duty of maintaining the accounts was of the company. The auditor had to check the accounts and certify as to the correctness of the accounts maintained by the company. The auditors had to be satisfied as to whether the accounts have been maintained properly. If the auditors' certificate that the accounts had been maintained properly turned out to be false, it would have meant that the company had not maintained its accounts properly. The auditors had to be satisfied as to whether the accounts have been maintained properly. If the auditors' certificate that the accounts had been maintained properly turned out to be false, it would have meant that the company had not maintained its accounts properly. If the company decided to defend the auditor in the suit filed against the auditor for falsely certifying about proper maintenance of accounts, the expenditure incurred by the company for conducting the suit filed against the auditor must be incidental to the carrying on of the business of the company. The dispute was inextricably linked up with the proper maintenance of accounts by the company itself. ( 7 ) MR. Mitter, appearing on behalf of the Revenue, has contended that it was not necessary for the company to defend the auditor. The auditor could defend himself. ( 8 ) WHETHER the auditor could defend himself or not is not really the question. The question is, was it in the interest of the company to defend this suit ? If it was so, the expenditure will have to be allowed. ( 9 ) IN the case of CIT v. Dhanrajgirji Raja Narasingirji , the question of allowability of the legal expenses incurred by a company came up for the consideration of the Supreme Court. That case related to both the civil and criminal proceedings. The criminal proceeding was about misappropriation of the company's funds as well as other fraudulent acts on the part of one Ramgopal Ganpatrai while managing the company. The assessee-company employed its own lawyers to prosecute the case. The prosecution culminated in the conviction of Ramgopal Ganpatrai. The Supreme Court held that the expenditure incurred by the company for the criminal and civil litigations was allowable. It was observed by the Supreme Court that ( at p. 550 ) :". . . It was for the assessee to decide how best to protect his own interest. It was the duty of the assessee to see that the prosecution was properly conducted. He was interested in successfully prosecuting the case. The fact that he did not leave the carriage of the case in the hands of the prosecuting agency of the Government is no ground for disallowing the expenditure. It is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. The fact that he did not leave the carriage of the case in the hands of the prosecuting agency of the Government is no ground for disallowing the expenditure. It is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. . . " ( 10 ) HERE also, it was for the company to decide how best to protect its own interest. If the company thought that by supporting the auditors its own purpose would be served, then the expenditure would be incidental to the company's business. ( 11 ) IN the case of Parshva Properties Ltd. v. CIT , a criminal proceeding had been initiated against Haridutta Bishnoi, a director of the company, Ramshankar Singh, an agent of the company, and Fakirchand Maheswari, manager. All these persons were convicted under Section 74 (1) (a) of the Indian Mines Act, 1952, for violation of regulations 38 and 40 of the Indian Metalliferous Mines Regulations, 1926. Each of them was sentenced to pay a fine of Rs. 1,000 and in default to undergo simple imprisonment for a period of two months. The question that came up for consideration before this court was, whether the litigation expenses incurred by the company in defending these three persons were allowable in law. It was held by this court that a liability or penalty imposed on the assessee for infraction of law could not be allowed as expenditure incurred in the course of carrying on of the business of the company, because that will be contrary to public policy. But in so far as the expenses incurred in defending the accused persons in respect of the acts alleged to have been committed by them in the course of employment of the assessee while carrying on the business of the assessee were concerned, unless it could be said that the expenditure was not incurred bona fide, in the interest of the company, the expenditure should be allowed in computing the total income of the assessee. It was held in that case that the expenditure was allowable. One of the persons who were involved in that case was only an agent of the company. ( 12 ) IN the premises, question No. 1 must be answered in the affirmative and in favour of the assessee. It was held in that case that the expenditure was allowable. One of the persons who were involved in that case was only an agent of the company. ( 12 ) IN the premises, question No. 1 must be answered in the affirmative and in favour of the assessee. ( 13 ) THE second question also relates to business expenditure. The assessee had got a market survey done by Bomas Ltd. , a foreign company, for the purpose of obtaining information about, inter alia, the readership of the assessee's publications, socio-economic breakdown, material status of the readers, etc. The survey was also made about personal and social habits of the readers. The survey was conducted solely with a view to gearing up the sales of the company and pushing up its image in the world of communication. The expenditure incurred for this purpose was claimed as allowable revenue expenditure. ( 14 ) THE expenditure incurred in connection with market research did not improve the profit-making apparatus of the company. It was an expenditure incurred in the process of profit-making. The knowledge gained by the market survey could be usefully utilised by the assessee in the carrying on of the newspaper business. ( 15 ) MR. Mitra contended that the survey had brought into existence an advantage of enduring nature. The knowledge of the market condition will give the assessee an enduring benefit in the carrying on of the assessee's business.