Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1944-45 - Assessee was partner in a firm having salt factories at two places - Due to differences amongst partners assessee instituted suit for dissolution of partnership and other consequential reliefs and prayed in plaint itself for appointment of a Receiver - Subordinate Judge noticing that there would be heavy loss in assets of firm, especially in respect of forefeiture of lease in one factory and loss of advance paid to labourers in other factory, appointed Receiver and directed him to complete transactions begun but left unfinished at time of dissolution - Accordingly, receiver carried on business and realized profit - Assessee was paid his share out of said profits - In his income-tax assessment assessee claimed deduction of litigation expenses - Whether it was impossible to apportion total legal expenses between legal expenses incurred in connection with appoint of a Receiver on one hand and legal expenses incurred for dissolution of partnership on other as both were inextricably mixed up and entire legal expenses should, in circumstances of the case, be held to be for purpose of protecting assets of firm during transitional period - Held, yes -Whether, therefore, litigation expenses were a permissible deduction under section 10(2)(xv) of 1922 Act - Held, yes FACTS The assessee was carrying on a partnership business with his four separated brothers. One of the important businesses carried on by the partnership firm was the manufacture of salt at two places. Due to some differences amongst the partners the assessee instituted a suit for dissolution of partnership and for other reliefs in the Court of the Subordinate Judge and prayed in the plaint itself for appointment of a Receiver. The Subordinate Judge appointed a Receiver and directed him to carry on the business and to complete the transactions begun but left unfinished at the time of the dissolution in order to protect the assts of the firm. The Receiver carried on the business and realized profit. The assessee was paid his…

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