TMI Blog1990 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... p. A difference arose among the members of the two groups as a result of which a partition suit was filed before the Calcutta High Court. The High Court decided the suit on June 12, 1977, in consequence of which each group was allotted certain properties and business belonging to the bigger Hindu undivided family. The assessee claimed deduction of Rs. 1,58,415 being expenses for litigation in respect of the aforementioned suit. The Income-tax Officer negatived the assessee's claim. The assessee appealed to the Commissioner of Income-tax (Appeals) who, after considering the entire factual aspects of the matter and by following the decision of the Andhra Pradesh High Court in the case of Boorugu Nagaiah Rajanna v. CIT [1978] 114 ITR 350, held that the entire litigation expenses claimed by the assessee should be allowed as a deduction in the assessment year under reference. Against the order of the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Appellate Tribunal. The Tribunal held that the partition suit was finally settled during the previous year relevant to the assessment year under reference. The Tribunal, following the decision of the Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ Accounting Assessment Amount Paid to whom year year (Rs.) --------------------------------------------------------------------------------------------------------------------------------------------------- 1971-72 1973-74 10,800 Jalan and Company Solicitor 1972-73 1974-75 71,200 " " 1974-75 1976-77 10,000 " " 1975-76 1977-78 12,250 " " 1976-77 1978-79 4,165 Umpire Fee-appointed by the High Court 1977-78 1978-79 50,000 Jalan and Company Solicitor -------------------------------------------------------------------------------------------------------------------------------------------------- It appears that certain mines, oil mills and other business and properties of the Hindu undivided family known as Ramdas Mahadeo Prosad were being controlled by the separate group of members of the Hindu undivided family, namely, Sri S. S. Swaika and his group and Sri G. V. Swaika and his group. The mining business at Jabalpur and grinding business at Liluah were controlled by Sri S. S. Swaika group. Separate returns of income were filed by those two groups. The Income-tax Officer, while assessing the Hindu undivided family, Ramdas Mahadeo Prosad, clubbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets. The Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal rejected the claim of the assessee on the ground that all the assets of the firm as such were not in jeopardy but the dispute was only concerning a part of the assets between the coparceners and that there was no nexus between the expenditure incurred and the business run by the assessee-firm. There, the Andhra Pradesh High Court held that where litigation expenses are incurred by the assessee for the purpose of creating, curing or completing his title to the capital, the expenditure incurred must be considered as capital expenditure. But, if the litigation expenses are incurred to protect the business of the assessee, they must be considered as revenue expenditure. Though the assessee-firm was not directly connected with the litigation that ensued between the partners of the firm on the one hand and the alleged adopted son of the coparcener, still, if the litigation ended in favour of the adopted son of the coparcener and against the partners of the assessee-firm, the assessee partnership-firm would have to part with at least half of the assets which were invested in its business and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this sum of Rs. 13,164 as a business expenditure in computing his income from the salt pan business for the assessment year 1962-63 was negatived by the Income-tax Officer but upheld by the Appellate Assistant Commissioner and the Tribunal. The court held that the assessee's resistance to the partition suit by J was motivated wholly with the intention of preserving for himself possession not only of his half share of the properties in question but also of the other half share claimed by J, so as to preserve for himself the source of income from the salt pans. The expenses incurred by the assessee for resisting the suit were only to protect his title to an existing capital asset. It was not a capital expenditure. It had to be allowed as a deduction in the computation of the assessee's taxable income. On the other hand, Mr. Moitra has drawn our attention to the decision of this court in Albert David Ltd. v. CIT [1981] 131 ITR 192. In that case, the assessee-company was promoted by J, who, with his wife, was the largest owner of shares of the company. J was the managing director for life under the articles of the company. Subsequently, M became a director of the company and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other conditions are fulfilled, even though the expenditure does not directly relate to the earning of the income. There was no asset as such of the Hindu undivided family, the assessee before us, which could be preserved or protected by filing a partition suit. The deductibility of expenditure incurred in prosecuting the partition suit depends upon the nature and purpose of the suit or proceeding in relation to the assessee's business. The assessee in the instant case, as indicated earlier, did not have any business of its own, nor did the assets which were the subject-matter of the partition suit belong to the assessee-Hindu undivided family as such. It is true that the karta of the assessee-Hindu undivided family being a coparcener in the bigger Hindu undivided family had a certain interest in the coparcenary property. But that will not be a ground for claiming deduction in the assessment of the assessee-Hindu undivided family when it had no business assets to be protected or preserved. On the other hand, the two groups in their respective returns filed before the Commissioner of Partition Suit must have claimed the litigation expenses, inasmuch as until the allotment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arcener has an antecedent title to the property, though its extent is not determined until partition takes place. That being so, partition really means, that whereas initially all the coparceners had subsisting title to the totality of the property of the family jointly, that joint title is transferred by partition into separate titles by the individual coparceners in respect of several items of properties allotted to them respectively. As this is the nature of the partition, it is incorrect to say that the partition of an Hindu undivided family property necessarily means transfer of property to the individual coparceners. As indicated earlier, in this case partition was effected by agreement in the suit on June 12, 1977, during the previous year relevant to the assessment year 1978-79. In the assessment year 1978-79, the assessment was being made on the income or loss coming out of the assets allotted on June 12, 1977, to the karta of the assessee-Hindu undivided family which are treated as assets of the assessee-Hindu undivided family. Any expenditure incurred on litigation by the karta in connection with the partition suit concerning the aforesaid assets, prior to June 12, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
