MATUBAI CHUNILAL PATEL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961, (hereinafter referred to as the Act). The assessee is an individual and the relevant assessment year was 1962 63, the " previous year "being the calendar year ending on 31st Dec., 1961. The assessee derived income from various sources, viz., interest on securities, dividends and share of profits of two partnership firms. These two firms were Dhirajlal Khushaldas & Brothers and Dhirajlal Chunilal & Co. We are concerned in the present reference with the firm of Dhirajlal Khushaldas & Bros. The assessee owned a car and in his individual assessment he claimed 50 per cent of his running expenses and 50 per cent of the depreciation, aggregating to Rs. 6,024, as deductible expenditure contending that the motor car was used by him for the discharge of his duties as a partner in the partnership concern of Dhirajlal Khushaldas & Bros. This claim of Rs. 6,024 was disallowed by the ITO, firstly, on the ground that though there was a provision for deduction of interest from such income of share of profits in a partnership firm, under S. 67(3) of the Act, there was no such provision for other expenses ; and the second ground was that, whatever expenditure pertained to the business carried on by the firm, was properly debitable to the account of the firm and not to the assessment of the income of the partners. Against the decision of the ITO, there was an appeal by the assessee ; and the AAC upheld the disallowance of these motor car expenses on the ground that there was no clause in the partnership deed enjoining the assessee to maintain a car for the business of the firm and in the absence of such a clause, commercial expediency of the conveyance expenditure could not be said to have been made out. The assessee took the matter in further appeal to the Tribunal and the Tribunal upheld the orders passed by the authorities below on the ground that the terms of the instrument of partnership did not fasten upon the assessee any liability of incurring expenses claimed so that he should be in a position to earn his share of profit. The Tribunal further observed that if any conveyance charges were incurred for the purpose of the business of the firm in which the assessee was a partner, they would be an admissible charge against the income of the firm ; and that it was not open to a partner in a firm to claim any deduction which would have been claimed by the firm.

(2.) THEREAFTER , at the instance of the assessee, the following question has been referred by the Tribunal to this Court under S. 256(1) of the Act, viz. :

(3.) UNDER S. 37 of the Act, any expenditure not being expenditure of the nature described in S. 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head " Profits and gains of business or profession ". This provision in the Act of 1961 is the same as the provision set out in S. 10 (2)(xv) of the Act of 1922, and the decisions on S. 10(2)(xv) of the 1922 Act have a direct bearing on the interpretation of S. 37(1) of the Act.