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Issues Involved:
1. Validity of gifts made by Vithaldas to his daughter-in-law and grandchildren. 2. Deduction of interest paid on the gifted amounts under Section 10(2)(iii) of the Income-tax Act. 3. Deduction of remuneration paid to employees under Section 10(2)(xv) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Validity of Gifts: The case revolves around whether the gifts made by Vithaldas to his daughter-in-law and grandchildren were legally valid. Vithaldas executed a deed on February 2, 1946, declaring his intention to give 1/4th of his share in the business to his daughter-in-law and grandson. Entries in the firm's books on November 12, 1947, debited Vithaldas's account and credited the accounts of the donees. On April 15 and 17, 1948, Vithaldas confirmed these gifts through written documents, which were accepted by the donees. The Tribunal found that the donees maintained separate accounts, were assessed for tax on the interest earned, and had withdrawn part of the sums for personal use. The Tribunal concluded that the gifts were genuine and legally valid, satisfying the legal requirements of a completed and valid gift. The High Court upheld this view, noting that the genuineness of the gifts was not in dispute and that the transactions were genuine and bona fide. 2. Deduction of Interest Paid on Gifted Amounts: The assessee firm claimed a deduction of Rs. 15,947 for interest paid on the amounts gifted by Vithaldas. The Department challenged the validity of the gifts but not their genuineness. The Tribunal held that the share capital of the partners was an actionable claim that could be assigned, and the conditions of Section 130 of the Transfer of Property Act were complied with. The Tribunal found that the gifts were accepted by Lilavati on behalf of herself and her minor children, and the firm made suitable entries in its account books. The High Court agreed with the Tribunal, stating that the rights of the donees were defined and ascertained, and they became creditors of the firm. The court found ample material to satisfy the legal requirements of a completed and valid gift and upheld the deduction under Section 10(2)(iii). 3. Deduction of Remuneration Paid to Employees: The assessee firm was a partner in another firm, Halar Salt & Chemical Works, represented by Harjivandas Vithaldas. Harjivandas employed two individuals, Bachubhai and Balkrishna, to manage the firm's affairs and paid them remuneration. The Department argued that this was an appropriation of profits and not a legitimate deduction. The Tribunal found that the arrangement was genuine, the employees were not related to the partners, and the payments were wholly laid out for earning the firm's share income. The High Court upheld the Tribunal's view, stating that the payments were legitimate deductions under Section 10(2)(xv) and were necessary for the commercial expediency of the business. Conclusion: The High Court answered both questions in the affirmative, upholding the validity of the gifts and the deductions claimed by the assessee firm. The court emphasized the genuineness of the transactions and the commercial necessity of the expenses incurred. The Commissioner was ordered to pay the costs.
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