9911796707
TMI Blog1958 (10) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... iting in order to allay the fears of his son that he might re-marry and stated that he would give out of his share in the business as computed at the end of the year 1/4th amount each to Harjivandas's wife and Harjivandas's son Manoo. 5. Prior to S.Y. 2003 no balance-sheet had been drawn up and the capital of the business which was carried on in partnership between Vithaldas and his son Harjivandas in equal shares had not been determined. At the end of S.Y. 2003, the total capital of the business was computed and credited in equal shares of ₹ 8,83,070 each to the account of Vithaldas and his son Harjivandas. The sum credited to Vithaldas's account thus represented his share of the capital and accumulated profits till S.Y. 2003. 6. On Aso Vad 30, S.Y. 2003 (November 12, 1947), entries were passed in the firm's books debiting the account of Vithaldas with a sum of ₹ 8,83,070 by crediting the following accounts: (1) ₹ 1,00,000 Narendrakumar Harjivandas (minor), (2) ₹ 25,000 Manjula Harjivandas (minor), (3) ₹ 25,000 Pushpa Harjivandas (minor), (4) ₹ 58,000 Harjiwandas Vithaldas (trust account), (5) ₹ 2,25,000 Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , were all executed prior to the introduction of Income-tax Act or the Transfer of Property Act and the Indian Contract Act in Saurashtra. The Department acquiesced therein as well as for the subsequent assessment year 1951-52. For the assessment year 1952-53, the assessee firm claimed to deduct under section 10(2)(iii) interest of ₹ 15,947, credited to the accounts mentioned in paragraph 6, excepting the account at No. 4, in computing its profits under section 10. In the relevant assessment year 1952-53, the Department came on appeal to the Tribunal challenging the validity of the transfer but not the genuineness thereof. It was contended (1) that the ultimate transfer vide the entries dated November 12, 1947, in the account books of the firm to each donee was not strictly in a proportion set out in the deed dated February 2, 1946, executed by the donor and (2) that no sufficient cash balance existed on Aso Vad 30, S.Y. 2003, which could have enabled the donor to make an effective and valid gift by delivery thereof and as such mere entries in the books of account of the firm were insufficient to constitute a valid gift. Reliance was placed on the case of Muthappa Chettiar v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year and remuneration was to be paid only out of the profits. In the relevant year of account the remuneration of the two employees worked out to ₹ 24,706 and ₹ 4,360 respectively. After disallowing this remuneration the share income and interest from the said firm worked out to ₹ 70,832. According to the Department this arrangement was tantamount to an appropriation of profits as it was not necessary for a partner to employ outsiders. The Appellate Assistant Commissioner, on appeal, held in the appeal, for the assessment year 1951-52, which was acquiesced in by the Department and repeated in the relevant year of account, that the assessee had considered it expedient from the commercial point of view to employ the said employees to look after its interest, that they were not related to the partners of the assessee firm and the genuineness of the payments not having been doubted by the Department the expenditure was one wholly laid out for the purpose of earning its share income from the said firm and as such was allowable as a deduction in computing its real income therefrom. The Tribunal upheld this view. The order of the Tribunal is annexure 'G' and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marry. He stated in that writing that out of his ? share in the profits he would give ?th share to the wife of his son and another ?th share to Manu, his grandson, meaning thereby that he would keep to himself ? of his 8 annas share in the profits of the partnership. The account of the partners at the end of S.Y. 2003 showed this. To the credit of the two partners stood two sums of ₹ 8,83,070. These sums represented their share of the capital and their accumulation of profits upto the end of S.Y. 2003. On Aso Vad 30, S.Y. 2003 (12th November, 1947), entries were passed in the firm's books debiting the account of Vithaldas with a sum of ₹ 8,83,070 by making corresponding credit entries as we shall immediately state. The whole amount was debited to the account of Vithaldas and on the credit side one item of ₹ 2,25,000 was then entered in his name. It represented the capital amount which was to continue to the credit of Vithaldas so that really Vithaldas was parting with the sum of ₹ 8,83,070 minus ₹ 2,25,000. The other credit entries are: ₹ 1,00,000 credited to Narendrakumar Harjivandas (minor) (son of Harjivandas) ₹ 25,000 credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,25,000 to Chi. Mansukh, ₹ 1,00,000 to Chi. Narendra and to Chi, Manju and Pushpa each ₹ 25,000 and which in the books of our firm have been debited to my account and have been credited to the account of each of you. Some conversation having taken place between us today in that matter I once again assure you that there is absolutely no heart-ache in my mind about that giving gifts nor any doubt and I have given all those gifts with pure intelligence and I do not want back even a pie out of it and that to me is equal to cow's beef. Each of you has complete right on those gifts and I had absolutely no right of which be rest assured. Over and above that I am so much satisfied with your Khandani (respectability) and family service that I have also a fond wish that even after my death too my share in the firm be available to you and the children therefore you will not keep in your mind any misgivings of any sort. I give this writing in the presence of our Mehtaji Jayantilal for your personal satisfaction and give all of you my blessings. That is all. Daskat: Sd. Jayantilal.Dated 17-4-1948. Sd. Vithaldas Dhanji by his own hand. (To) Vadil Pujya Murabbi Sasaraji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer disallowed the amount of interest claimed as a deduction, but in appeal the Appellate Assistant Commissioner allowed the deduction and the contention that was raised before the Appellate Assistant Commissioner was mainly on the question of validity of the gifts and not that the gifts were not genuine. The Appellate Assistant Commissioner held that the gifts had been duly accepted by Lilavati on her own behalf and on behalf of her children. He also held that the documents were all executed prior to the introduction of income-tax in Saurashtra. The Department accepted that position also for the subsequent year 1951-52. So that in the first year, the Department did not take any objection to this deduction; in the second year the objection that it took was about the validity of the gifts which was turned down and in the third year it did not take any objection. However, for the assessment year 1952-53 when the assessee firm claimed a deduction in respect of interest amounting to ₹ 15,947 an objection was raised in computing the profits of the assessee under section 10. The Department carried the matter in appeal to the Tribunal against the orders which were made against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two employees was to be paid out of the profits made by the parent firm and in case that firm made a loss the share of the loss was to be carried forward to the next year and the remuneration was to be paid to the two employees only out of profits. In the relevant assessment year, the amount of remuneration of the two employees worked out at ₹ 24,706 and ₹ 4,360 respectively. After disallowing this remuneration, the assessable income of the assessee firm from the parent firm was computed at ₹ 70,832. The Income-tax Officer took the view that this was not a permissible deduction but was tantamount to an appropriation of profits as in its opinion it was not necessary for Harjivandas to employ any outsider to represent him in the parent firm. In appeal, the Appellate Assistant Commissioner took the contrary view. He reached the conclusion that it was expedient from the commercial point of view for Harjivandas to employ those two persons to look after his interest. He also found that they were not in any way related to him and that the whole arrangement was genuine. According to him, it was an expenditure wholly laid out for the purposes of earning an income and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid gift. The rights of the donees were defined and ascertained; they became creditors of the firm and received interest as such and withdrew part of the moneys accepted and agreed as due to them by the firm as a result of what was a tripartite arrangement. Once you accept the genuineness of the facts relating to the transaction, there is little scope, in the facts and circumstances of this case, for suggesting that what was done was inchoate or incomplete or invalid in law. Before we proceed to consider another argument of Mr. Joshi, we may observe that two elements were stressed by Mr. Joshi. It was said that when the entries were made in the books of account of the assessee firm, there was no sufficient cash in hand and therefore there could not, in law, be delivery of the moneys to the donees. The ingredient and question of delivery has its importance in the case of gift but in the context of the transaction before us, actual physical delivery is not the sine qua non of the matter. Delivery can be symbolical. This court had occasion to deal with a similar question in Chimanbhai Lalbhai v. Commissioner of Income-tax ([1958] 34 I.T.R. 259), and in view of what this court there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer on the ground that the sums shown to the credit of the donees did not amount to "capital borrowed for the purpose of the business" of the assessee; nor does it appear that any such contention was raised before the Appellate Assistant Commissioner; and when such attempt was made before the Tribunal, it was bound to be discountenanced. Therefore, the present argument must fail. To turn to the second question which arises on this reference. In our survey of facts we have already referred to the circumstances which give rise to this question. Here also it may be observed that the genuineness of the payments to the two persons Bachhubhai and Balkrishna has not been doubted by the Department, the sole question being whether these payments were allowable deductions. The Tribunal has dealt with this contention in the following manner: "The only other contention is in respect of the deduction of ₹ 24,707 and ₹ 4,360 paid to Bachhubhai and Balkrishna respectively out of the share of the assessee standing in the name of Harjivandas from Messrs. Halar Salt & Chemical Works. Harjivandas's share was 20% and as he was unable to give any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase (I.T. Reference No. 9 of 1958) [1959] 36 I.T.R. 18 we had occasion to consider a somewhat similar matter and in Shantikumar's case [1955] 27 I.T.R. 69, somewhat similar considerations arose before this court. The question here is not of wiredrawn technicalities or any refined distinction but what is the real income of the partner. The matter has to be approached bearing in mind the commercial aspects of the same. Therefore, in our opinion, the Tribunal was right in the conclusion reached by it that these two sums were legitimate deductions. It was lastly urged by Mr. Joshi that in the question as formulated reference is only made to section 10(2)(xv) and what we have to decide is the question whether the deductions are permissible under section 10(2)(xv). It is not necessary to deal with this argument in detail. It is open to the assessee before us to rely also on any other provision in section 10. Moreover, there is nothing in the judgment of the Tribunal that its decision was under section 10(2)(xv). In view of what we have observed it is necessary to re-formulate the second question which should be as under: "Whether on the facts and in the circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
