Law:

Section:

Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of – Assessment year 1966-67 – ‘R' died leaving behind his three sons, ‘V', ‘B' and ‘M' – After partial partition, substantial part of properties of ‘R' were taken over by survivorship by sons and grandsons of ‘M' who formed themselves into partnership viz assessee-firm – Widow of ‘B' had adopted ‘H' as son to her deceased husband – ‘H' filed suit claiming half share of joint family property of ‘R' – City Civil Court dismissed said suit holding that adoption of ‘H' was invalid – Assessee claimed deduction of litigation expenses incurred in defending said suit during relevant assessment year – ITO disallowed claim on ground that assessee was not included as a defendant in suit but only some of partners of assessee pursued suit – Whether since ‘H' was claiming half share on partition of assets left by ‘R' and if that claim of ‘H' succeeded, assessee-firm had to part with atleast half of assets which were invested in its business - Held, yes - Whether amount spent by assessee was not for acquiring new title or curing defect in title or getting rid of defect in title but was to maintain title which was otherwise perfectly good - Held, yes - Whether - Until final determination of amount of costs till end of trial court stage was reached, it could not be predicated what amount of expenditure would be and, therefore, assessee was justified in claiming entire amount as deductible expenditure in relevant assessment year – Held, yes FACTS One ‘R' died leaving three sons, ‘V', ‘B' and ‘M', ‘V' died issueless. ‘B' died leaving behind him, his widow ‘S' but without leaving a male issue. ‘M' had five sons and five grandsons. After the death of ‘R' a partial partition took place in his family and substantial part of his properties were taken over by survivorship by ‘M' and his sons. ‘S', the widow of ‘B', was given only the right of maintenance. The sons and grandsons of ‘M' formed themselves into a partnership and that partnership was the assessee-firm. Later ‘S' purported to adopt one ‘H' as a son to her deceased husband ‘B' and a deed of adoption was executed. After the adoption, ‘H' filed a…

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