Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1956-57 to 1958-59 - The assessee firm consisted of father 'V' and son 'H' - The partnership deed stipulated that after death of 'V' his assets and goodwill as also, in case of business was continued, in place of his share in profits and losses would be distributed in stipulated share amongst wife and children of 'H' - On death of 'V', the son carried on business as sole proprietor - 'H' entered into agreement with wife and children according to which capital standing to the credit of 'V' was divided between the wife and children - The also agreed to allow 'H' the use of the goodwill of entire business of the firm in consideration of payment of lump sum amount every year - The assessee claimed deduction of said amount which was disallowed by the ITO - On appeal the AAC affirmed the order of the ITO - On further appeal, the Tribunal held amount paid as a fee or charge for use of goodwill was an allowable revenue expenditure - Whether since as a result of arrangement assessee's wife was not admitted as a partner and assessee's minor sons were not admitted to benefits of partnership but it was precisely because of this that assessee had to obtain use of share of goodwill belonging to his wife and minor sons and was required to pay diverse amounts to his wife and minor sons as rent or fee for obtaining use of their share of goodwill and amounts paid by assessee were, therefore, clearly laid out or expended wholly and exclusively for purpose of business of assessee and were allowable deduction under section 10(2)(xv) - Held, yes Section 256, read with section 37(1) of the Income-tax Act, 1961 [Corresponding to section 66, read with section 10(2)(xv), of Indian Income-tax Act, 1922] - Reference to High Court - Question of law - Whether amount paid by assessee is wholly and exclusively paid out or expended for purpose of assessee's business was a question of law which could be examined in exercise of advisory jurisdiction under section 66(1) - Held, yes FACTS The assessee firm consisted of father 'V' and son…

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