Law: Income Tax Act, 1922

Section: 23

Law: Income Tax Act, 1922

Section: 23

Section 143 of the Income-tax Act, 1961 [Corresponding to section 23 of the Indian Income-tax Act, 1922] - Assessment - Additions to income - Assessment years 1951-52 and 1952-53 - Assessee was a partner in a partnership firm - It was found that a certain sum was due from firm to assessee and that amount was credited in name of assessee - Subsequently account of assessee was debited with a certain sum and same was credited to account of assessee's grandsons along with interest - ITO rejecting claim of assessee that he had transferred said amount by way of gift to each of his grandsons, held that interest credited in accounts of grandsons was interest earned by assessee and, accordingly, added same to income of assessee - Whether since amount owned by partnership firm to assessee was a debt, it would be an actionable claim and, therefore, in absence of any deed of transfer, no valid transfer of amount in question would come into being - Held, yes - Whether, therefore, mere book entries transferring amount in question from account of assessee to accounts of his two grandsons in books of firm did not constitute a valid gift in law but, amounted to transfer of an actionable claim - Held, yes FACTS The assessee was a partner in a firm consisting of himself and his sons, carrying on business. On the retirement of the assessee from the partnership, it was found that a sum amounting to Rs. 1,13,000 was due from the firm to the assessee, and at the beginning of the year, i.e., on 22-10-1949, that amount was credited in the name of the assessee. Subsequently, account of the assessee was debited with a sum of Rs. 50,000, and the accounts of two grandsons of the assessee, were credited with a sum of Rs. 25,000 each. For the relevant assessment years, the ITO rejecting the contention of the assessee that he had transferred Rs. 25,000, by way of gift to each of his grandsons, held that the interest credited in the accounts of these two grandsons really was the interest earned by the assessee, and added the same to the income of the assessee. On appeal, the AAC upheld the order of the ITO. On further appeal, the Tribunal held that the entries, on which reliance was placed,…

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