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 years 1947-48 and 1948-49 - Appellant assessee was an employee of 'K' - In order to finance his contract business of raising coal form colliery, appellant entered into an agreement with public charitable trust, for advancing certain amount to him - During relevant assessment years, appellant paid to trust certain interest and a sum equivalent to 11/16th of net profits of his business in consideration of aforesaid advance and claimed deduction thereof - Whether payment in question was a revenue expenditure deductible under section 10(2)(iii) or under section 10(2)(xv) of 1922 Act - Held, yes FACTS The appellant assessee was an employee of one 'K'. In order to finance his contract business of raising coal from colliery, appellant entered into an agreement with a public charitable trust, wherein 'K' was a managing trustee for advancing certain sum to him. He agreed to pay to trust interest on loans advanced in addition to a sum equivalent to 11/16th of the net profits of his business. During relevant assessments years, appellant claimed deductions under section 10(2)(iii) or 10(2)(xv) of 1922 Act in respect of aforesaid payments made to trust. The amount of interest was allowed but the claim in regard to the other sums paid was disallowed by the ITO on the ground that the agreement was not genuine and bona fideand that it was not promoted by ordinary business considerations. On appeal, AAC upheld the order of the ITO. On further appeal, the Appellate Tribunal also rejected the assessed, claim. On reference, the High Court held that this was a case of joint adventure between the parties, a quasi-partnership and that the arrangement between the parties was that the amount of profits would be ascertained and then they would divide it up in certain specified proportions. The payments, therefore, did not fall within section 10(2)( xv) of 1922 Act. On appeal to the Supreme Court : HELD In the instant case, the appellant was a person of comparatively small means. There was nothing to show on the record…

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