COMMISSIONER OF INCOME TAX Vs. MAHATTA CONSTRUCTION CO

JUDGEMENT

(1.) THE following question has been referred to this court under Sub-section (1) of Section 256 of the Income-tax Act, 1961. THE question reads as under :

(2.) THE firm, Mahatta Construction Co., at Ketekibari at Tezpur, is the assessee in this case. THE question relates to the assessment years 1970-71 and 1972. Mohanlal Choudhury, a partner of the firm, had a credit balance of Rs. 36,619.82. In the relevant year, the profit to his credit was Rs. 36,619.12. Out of the total amount, he had withdrawn Rs. 50,000 and made a gift of the amount to his niece, Anju Mahatta, on July, 19, 1969. THE closing balance for that year, i.e., 1970-71, was Rs. 10,805. THE closing balance for 1971-72 was Rs. 20,830. THE gift made by him was assessed under the Gift-tax Act.

(3.) WE see that the question is in three parts : (a) Whether the partner, Mohanlal Choudhury, was entitled to withdraw Rs. 50,000 and make a gift of the amount; (b) whether the gift was valid ; and (c) whether the payment of interest to the donee was an allowable deduction ?