Supreme Court Judgments — 1982

The Tribunal held that the assessee's liability as a partner had not ceased despite changes in the managing agency firm's constitution. It found that the payment was not made on personal considerations but purely on business considerations, with the sole object of maintaining its profitable business connection. The Tribunal also held that there was no bar to the assessee claiming the loss in its own assessment, even if it could have been claimed by the firm. The High Court, in reference, answered the question in favour of the assessee. The Supreme Court, dismissing the appeal, affirmed that the expenditure was incurred by the assessee as incidental to its trade for the purpose of keeping the trade going and making it pay. The expenditure was to avoid adverse effects on reputation, protect the managing agency (an income-earning apparatus), and retain it. The Court cited Usher's Wiltshire Brewery Ltd., British Insulated & Helsby Cables Ltd., Mitchell v. B.W. Noble Ltd., and Commissioner of Income-tax, Kerala v. Malayalam Plantation Ltd. for the principle that expenditure incurred on the preservation of a profit-earning asset is deductible. The Court also held that the fact the firm did not claim the expenditure did not affect the assessee's right to claim it as a deduction.

The Supreme Court held that for a partition to be recognized under Section 171 of the Income Tax Act, 1961, if the property admits of physical division, such a division must take place. Mere severance of status or division of income without physical division of the property is insufficient. Even where physical division is not feasible, such division as the property admits of (e.g., apportionment and equalization by payment of money) is required. The Court found that no attempt was made to physically divide the eighteen immovable properties, which could have been conveniently divided. Therefore, the claim of partial partition under Section 171 was rejected. The Court also held that as long as a finding of partition is not recorded under Section 171, the property subject to the claimed partial partition continues to be treated as belonging to the Hindu Undivided Family, and its income is includible in the total income of the family. The High Court's view that income from such properties could not be included was reversed. The assessee's appeal was dismissed, and the Department's appeal was allowed.