Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1959-60 to 1961-62 - Assessee-HUF consisted of 'D', his wife and adopted son 'T' - After 'D's death, 'T' became karta of assessee-HUF - In books of accounts of assessee-HUF a certain sum was shown as having been given to 'G', adoptive mother of karta, as a mutual settlement - Assessee claimed payments of interest thereon as business expense - Authorities below rejected assessee's claim - Whether since parties were governed by Mitakshara school of Hindu Law, mere assertion on part of 'G' that she separated from her son having obtained aforesaid sum could not constitute a valid partition as according to Mitakshara school of Hindu Law she being a Hindu be male had no right to claim partition of HUF - Held, yes - Whether so far as assessee's claim that amount transferred could be taken as family settlement of gift was concerned, since no such claim was made out before authorities below, it could not be allowed to make an absolutely new case at instant stage - Held, yes - Whether in view of aforesaid, it could be concluded that transaction of giving sum in question of 'G' was neither a valid partition, nor a family arrangement nor a valid gift and consequently, disallowance of interest was correctly made - Held, yes FACTS 'D', the karta of the assessee HUF, who was issueless, had adopted 'T', by virtue of a deed of adoption dated 4-1-1941. Some time in January, 1947, 'D' died and 'T' became the karta of the assessee HUF. On 23-10-1957, a sum of Rs. 45,000 was shown as having been given to 'G', the widow of 'D', and an entry in the book was made. During the relevant assessment years, certain interest payments were made on aforesaid amount which were claimed to be business expenditure by 'T'. The ITO as well as the AAC disallowed the same on the ground that the transfer of the amount was not valid and that it continued to belong to the HUF. On second appeal, the Tribunal held that there could be no question of partition between the mother and her only son being regarded as valid under the Hindu law, and that on the fact of the specific narration in the books of the…

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