1969 (4) TMI 17 - HC - Income Tax

Excess values shown in the partition deed - to adjust shares in partition - section 10(2)(vii) not applicable - expenditure incurred by the money-lending firm for dissolution of larger partnership to secure its loans are allowable u/s 10(2)(xv)

Summary

Issues Involved:
1. Nature of advances made by the assessee-firm to the firm, Bisesar House.
2. Admissibility of litigation expenses and remuneration paid under section 10(2)(xv) of the Income-tax Act, 1922.
3. Taxability of the sum of Rs. 10,614 under section 10(2)(vii) of the Income-tax Act, 1922.

Detailed Analysis:

1. Nature of Advances:
Issue: Whether the advances made by the assessee-firm, R. B. Bansilal Abirchand, to the firm, Bisesar House, were in the nature of loans during the course of money-lending business or represented the capital contributions of the Daga group of partners.

Analysis:
The court examined the partnership agreement and the history of transactions between the Kamptee firm and Bisesar House. The partnership deed dated 18th February, 1930, specified that any sums advanced by the partners to the partnership would be treated as loans and carry interest at 6% per annum. The Supreme Court consent decree explicitly stated that the advances made by the Kamptee firm were loans and not capital contributions. The court held that the advances were indeed loans, evidenced by clauses in the partnership agreement and the nature of transactions. The High Court's decree, which suggested otherwise, had merged into the Supreme Court's decree and was no longer operative.

Conclusion: The Tribunal was justified in holding that the advances were loans during the course of money-lending business and did not represent capital contributions.

2. Admissibility of Litigation Expenses and Remuneration:
Issue: Whether the expenditure on litigation and the remuneration paid to Shri R. K. Saran were admissible under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis:
The court considered whether the litigation expenses were incurred for the purposes of the business of the Kamptee firm. The litigation aimed to protect and recover the assets and investments of the Kamptee firm in Bisesar House. The court noted that the Kamptee firm had a direct interest in the Bisesar House firm, and the expenses were necessary to preserve its business and recover significant advances. The expenses were not merely for the dissolution of the partnership but also for safeguarding the firm's interests. The court cited various precedents supporting the admissibility of such expenses when incurred for the protection of the business.

Conclusion: The Tribunal was justified in holding that the litigation expenses and remuneration paid to Shri R. K. Saran were admissible under section 10(2)(xv).

3. Taxability of Rs. 10,614:
Issue: Whether the sum of Rs. 10,614 constitutes profit under section 10(2)(vii) of the Income-tax Act, 1922.

Analysis:
The court examined the circumstances under which the sum of Rs. 10,614 arose. The amount was related to a property allotted to one of the partners, Ramnath Daga, during a partition. The Income-tax Officer had treated the partition as a sale and taxed the difference between the written down value and the partition value. However, section 10(2)(vii) pertains to sales and not partitions. The court found that the transaction was a partition and not a sale, making section 10(2)(vii) inapplicable.

Conclusion: The Tribunal was justified in holding that the sum of Rs. 10,614 does not constitute profit under section 10(2)(vii).

Final Judgment:
1. Advances made by the assessee-firm to Bisesar House were loans.
2. Litigation expenses and remuneration paid to Shri R. K. Saran were admissible under section 10(2)(xv).
3. The sum of Rs. 10,614 does not constitute profit under section 10(2)(vii).

The department was ordered to pay the costs of the assessee, with a hearing fee of Rs. 250.