KALURAM KANKARIA Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is a reference under Section 66(1), Income tax Act (11 [XI] of 1922. as amended in 1939. The facts of this case are fully set out in the statement of the case made by the Income-tax Appellate Tribunal. The assessee, Seth Kaluram Kankaria, is a moneylender. On 21-7-1930, he took from one Udaimal four mortgages of the aggregate, value of Rs. 1,00,000. Three of these mortgages were for Rs. 20,000, each and the fourth one was for Rs. 40,000. On 1-10-1930, a creditor filed, an application that Udaimal be declared an insolvent and Udaimal was adjudged an insolvent on 28-3-1932. The Receiver appointed by-the Court to take charge of the property of the insolvent filed a suit under Secs.53 and 54, Provincial Insolvency Act, for annulment of the four mortgages on various grounds. On 12-9-1942, the Court ultimately held that the four mortgages were void. The Court came to the conclusion that the three mortgages for Rs. 20,000 each were without consideration and that out of the consideration of Rs. 40,000 the mortgagee, Udaimal, had been able to porve the first item of Rs. 15,000. As regards the second item of Rs. 16,000, there was only Udaimal's own statement to prove its payment, and the learned Judge who had heard the suit, though he was reluctant to accept his solitary statement, came to the conclusion that it probably formed a part of the consideration. The rest of the consideration was not established As regards the execution of the four mortgages, the Court recorded a definite finding that the intention was that since Udaimal was going to be ruined as much of his property as could be saved might be saved for his cousin, Tejmal. The Court further came to the conclusion that only Rs. 15,000 was the money out of Rs. 1,00,000 which had come out of the stock in trade of the appellant, while Rs. 16,000 was not a money-lending advance but was a deposit with the insolvent debtor for meeting the expenses of marriage of a female member who was related to the assessee.

(2.) The assessee had spent a sum of Rs. 9070 in defending his title on the basis of these four mortgages in the suit brought against him by the Receiver. He claimed this amount as an admissible deduction under Section 10(2)(XII), Income-tax Act, as it stood at the time of the assessment. Section 10(2)(XII) is as follows: any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The language of the sub-section has not been altered, but it is now, after the amendment in the year 1946 numbered as Section 10(2) (XV),Income-tax Act.

(3.) The question which has been referred to us is: Whether, in the circumstances of the case, the legal expense - amounting to Rs. 9070 incurred by the assessee is an expenditure laid out or expended wholly and exclusively for the purposes of his business within the meaning of Section 10(2)(xii) Income-tax Act?