Law: Income Tax Act, 1922

Section: 10(2)(iii),19(2)(iii),10(2)(xvi),10(2)(x v)

Law: Muhammadan Law

Section: 150

Law: Transfer of Property Act, 1882

Section: 123

Income-tax Act, 1922 -- Sections 10(2)(iii), 10(2)(xvi) -- Interest -- Borrowed capital -- Business expenditure -- Partnership consisting of father and son -- Gift by father out of his share capital to minor and major grandsons and wife -- Amounts gifted debited and credited in account books but remained part of capital of firm -- Gifts, whether valid under Muhammadan Law -- Held yes -- Deposits in the name of donees -- Whether capital borrowed -- Held no -- Interest on deposits, whether admissible under clause (xvi) and not clause (iii) -- Held yes -- Business expenditure -- Credits and deposits remaining with assessee and used for purpose of assessee's business -- Interest on such amount -- Held, expenditure incurred wholly and exclusively for assessee's business and assessee entitled to its deduction -- Muhammadan Law -- Gift -- Essentials to validity of -- Provision of section 123 does not apply to a gift under Muhammadan Law -- Acceptance of such gift in writing by donee not essential - Corresponding Sections: Income-tax Ordinance, 1979 -- Sections 23(l)(v), 23(l)(xvii) - ORDER The order was passed by MUHAMMAD SUBHAN CHOWDHURY, Accountant Member.---These three appeals arise out of the order of the Appellate Assistant Commissioner of Income-tax, on 6.5.1968. They relate to the charge years 1964-65, 1965-66 and 1966-67. The short question raised in all the three appeals is as to whether the Income-tax Officer was justified to disallow the interest purported to be paid and credited to the accounts of the wife and three minor grandsons of a partner of the appellant firm. 2. The facts leading to these appeals are that the appellant firm styled Mr. A and S was constituted with effect from the 1st of August, 1962, with three partners, namely, Mr. A his son B.A. and grandson C.B. having half the share and the other two having l/4th share each of the profits or losses in the firm in proportion to their capital contributions. Earlier right from the assessment year 1949-50 upto the assessment year 1962-63 the business of the firm mainly in Cigarette Agency was carried on in partnership between the father and son viz, A and B. On the first day of April, 1962 B.A…

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