Law: Income Tax Act, 1922

Section: 66(1)

JUDGMENT Jagdish Sahai, J.-This is a reference made by the Income-tax Appellate Tribunal, Allahabad Bench (hereinafter referred to as the Tribunal), under section 66(1) of the Income-tax Act of 1922. The assessment years in respect of which the reference has been made are 1940-41, 1941-42, 1942-43, 1943-44, 1944-45, 1945-46 and 1946-47. The assessees are a firm, Messrs. Juggilal Kamlapat of Kanpur. In the account books of the assessee firm, there is an account styled as Kamlapat Ji Dharam Khata. The following amounts were credited as interest in this account in each of the assessment years noted below : Year Rs. 1940-41 34,709.00 1941-42 33,771.00 1942-43 35,588.00 1943-44 40,609.00 1944-45 34,947.00 1945-46 32,158.00 1946-47 33,614.00 The assessees claim that the balance in the Kamlapat Ji Dharam Khata account was utilised for the purpose of its business and was treated as a loan and as such the interest paid by the assessee firm to Kamlapat Ji Dharam Khata was business expenditure admissible under section 10(2)(xv) of the Income-tax Act. The facts as given in the statement of case submitted by the Tribunal in short are as follows : L. Kamlapat died on 31st of May, 1937. On the 29th of May, 1937, at about 5 p.m. he is said to have informed Sri Gopi Krishna, the munim of the assessee firm, which is a banking concern, as admitted by the learned counsel for the parties, that he (Kamlapat Ji) had donated the following amounts for the purpose stated thereunder : (1)Rs. 5 lakhs to be set apart for the purpose of charity, the object of which was to construct 100 school buildings in the district of Kanpur, a hall and a ghat on the banks of the river Ganga in Kanpur meant for the use of the general public. (2)To give the amounts to the tune of Rs. 2,46,500 to some of his relations. (We need not give the details of these amounts because we are not directly concerned with them in the disposal of this reference.) The same day, the munim of the assessee firm opened an account as Kamlapat Ji Dharam Khata and showed a credit entry of Rs. 5 lakhs. The dispute between the assessees and the department is a very short one, the same being : whether or not a trust had been created…

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