Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of Indian Income tax Act, 1922) - Business expenditure - Allowability of - Assessment years 1944-45 to 1946-47 - Assessee, a Karta of HUF purchased a mill which was subject-matter of suit between vendor and his sons - District Judge held properties to be self-acquired properties of vendor - High Court, however, regarded said properties to be joint family properties in which sons had a two-thirds share-subsequently, assessee entered into a compromise by virtue of which he got a release of vendor's sons interest on payment of certain amount - Whether since assessee paid amount to perfect a title or as consideration for getting rid of defect in title, payment in question would be a capital payment and not revenue payment - Held, yes - Whether, therefore, assessee's claim for deduction of amount in question under section 10(2)(xv) of 1922 Act was to be rejected - Held, yes FACTS The assessee, Karta of a HUF, purchased from the vendor a spinning mill which along with other properties, was the subject-matter of litigation between the vendor and his sons. The District Judge held that the properties, including the mill were the vendor's self acquired properties, but on appeal, the High Court held that the said properties were joint family properties in which the sons had a two-thirds share. While the vendor's appeal to the Privy Council was pending, the assessee entered into a compromise with the sons by virtue of which he got a release of their interest on payment of Rs. 1,15,000, and became entitled to withdraw the amounts of profits of the mill deposited with the Court for the three years 1944-45, 1945-46 and 1946-47. The Privy Council finally restored order of District Judge-Accordingly, the ITO issued a reassessment notice under section 34 of 1922 Act in respect of lease income of the mill for the assessment year 1944-45, it was contended by the assessee (1) that the proceedings initiated under section 34 of 1922 Act were invalid in law as there was no new information leading to the discovery that income had escaped assessment (2) that, in any event the assessee was entitled to set off…

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