JUDGMENT
Jagannatha Shetty, J.
1. This is a reference under section 256(1) of the Income-tax Act, 1961.
2. The question of law referred is :
“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount of Rs. 5,582 debited as a provision for the use of the right of Mrs. Margon Pinto, the ex-partner, was not an allowable deduction ?”
3. The assessee is a firm. In the profit and loss account of the said firm, a sum of Rs. 5,582 was debited as a provision for the use of the right of Mrs. Margon Pinto, who was also a partner. There were some litigation as between her and the other partners of the firm which resulted in her exclusion as partner. The Income-tax Officer held that the provision made had not became a liability till the litigation was finally decided and, therefore, he added back the sum of Rs. 5,582.
4. In appeal before the Appellate Assistant Commissioner, it was urged that the said provision had been diverted by an overriding title created in her favour by section 37 of the Partnership Act, as well as by the terms of the partnership deed and, therefore, that income had ceased to be the income of the firm. The Appellate Assistant Commissioner did not accept the contention and upheld the order of the Income-tax Officer. So too, Tribunal, on further appeal.
5. The question raised is whether Rs. 5,582 debited as a provision for the use of the right of Mrs. Margon Pinto, the ex-partner, was not an allowable deduction. On the facts found, the question could not have been raised at all. There was no use of the right of Mrs. Margon Pinto by the firm in the relevant year since there was no credit balance in her favour. Therefore, the claim based on section 37 of the Partnership Act, is wholly misconceived. Since there was, admittedly, no credit balance to Mrs. Margon Pinto, the Tribunal was right in disallowing the claim.
6. In the result, we answer the question in the affirmative and against the assessee.