1973 (10) TMI 9 - HC - Income Tax

Whether Tribunal was correct in holding that the transaction of giving Rs. 45,000 to Smt. Gatkoo Bai was neither a valid partition nor a family arrangement nor a valid gift and, therefore, disallowance of interest of Rs. 2,898, Rs. 2,838 and Rs. 2,336 in the assessment for the years 1959-60, 1960-61 and 1961-62, respectively, was correctly made ? - submission of the learned counsel for the assessee that the transfer of the aforesaid sum of Rs. 45,000 to Smt. Gatkoo Bai represented a family arrangement cannot, therefore, be accepted.

Issues Involved:
1. Validity of the transaction of giving Rs. 45,000 to Smt. Gatkoo Bai as a partition, family arrangement, or gift.
2. Disallowance of interest payments as business expenses for the assessment years 1959-60, 1960-61, and 1961-62.

Issue-wise Detailed Analysis:

1. Validity of the Transaction of Giving Rs. 45,000 to Smt. Gatkoo Bai:

The primary legal question was whether the transaction of giving Rs. 45,000 to Smt. Gatkoo Bai could be considered a valid partition, family arrangement, or gift. The court examined the facts and circumstances surrounding the transaction.

The assessee, a Hindu undivided family (HUF), claimed that the sum was given to Smt. Gatkoo Bai, the widow of Dalichand, upon mutual settlement. The Tribunal found that the transaction did not constitute a valid partition under Hindu law, as a partition could not be effected between a mother and her only son. The court also noted that Smt. Gatkoo Bai was not a coparcener and had no right to claim partition. The court referenced Mulla's Hindu Law, emphasizing that partition involves defining shares of coparceners, which was not applicable in this case.

The court further analyzed whether the transaction could be considered a family arrangement. The assessee's counsel argued that it was a family arrangement due to Smt. Gatkoo Bai's right to residence and maintenance. However, the court found no evidence to support this claim, noting that the affidavit and account book entries did not indicate a family arrangement. The court cited Halsbury's Laws of England and the Privy Council's decision in Rani Mewar Kunwar v. Rani Hulas Kunwar, highlighting that a family arrangement requires a genuine dispute and a bona fide resolution, which was not present in this case.

Lastly, the court addressed the possibility of the transaction being a gift. The court noted that the assessee never claimed the transaction as a gift before the Income-tax Officer. Moreover, as a karta of the HUF, Tejraj had limited rights to make gifts of ancestral property, and no case of gift was made out.

2. Disallowance of Interest Payments as Business Expenses:

The second issue involved the disallowance of interest payments to Smt. Gatkoo Bai as business expenses for the assessment years 1959-60, 1960-61, and 1961-62. The Income-tax Officer disallowed the interest payments on the grounds that the transfer of Rs. 45,000 was not valid and continued to belong to the HUF.

The court upheld the Tribunal's finding that the transaction did not constitute a valid partition, family arrangement, or gift. Consequently, the interest payments accrued to Smt. Gatkoo Bai could not be claimed as business expenses by the assessee. The court referenced the Lahore High Court's decision in Hukam Chand Tek Chand v. Commissioner of Income-tax, which held that a mere entry in account books does not constitute a binding partition or family settlement.

Conclusion:

The court answered the referred question in the affirmative and against the assessee, concluding that the Income-tax Appellate Tribunal was correct in holding that the transaction of giving Rs. 45,000 to Smt. Gatkoo Bai was neither a valid partition, family arrangement, nor gift. Therefore, the disallowance of interest payments for the assessment years 1959-60, 1960-61, and 1961-62 was correctly made. The court assessed costs at Rs. 200.

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