1. At the instance of the assessec, the Income-tax Appellate' Tribunal, Allahabad (hereinafter referred to as ' the Tribunal '), has referred to this court two questions of law.
2. The facts of the case have been set out in the order of reference and it is unnecessary to repeat them.
3. It is convenient to take up first, the question No. 2 referred by theTribunal. That question reads :
' Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to conclude that the payment to theminor is not diversion of income but application of income in view of the charge and liability created by the agreement dated 24th August, 1963?'
4. In the course of its order the Tribunal has observed :
' So far as the story, that the minor is a very lucky person and in case some of his money was invested in business, that business would prosper is concerned, there is no tangible evidence on record. We have already stated above that the amounts have been credited in the account of the minor in these years and further that practically no withdrawals were made. It is certainly a point for consideration that the entire profits have remained in the hands of the assessee which he ploughed back in the the business.'
5. The clear import of the above observations of the Tribunal, in our opinion, is that the Tribunal held that the alleged payment by the assessee to the minor (represented by his guardian) of 50 per cent. of the profits of the business carried on by the assessee, was not by way of consideration for good luck said to have been brought to the assessee's business on account of the minor investing a paltry sum of Rs. 2,000 in the assessee's business. The question referred to us is not whether there was any material for the Tribunal to come to this conclusion. The assessee did not ask for such question being referred to us, presumably because the reason for his parting with 50 per cent. of the profits earned by him in his business, in favour of the minor, being a matter specially within his knowledge, the burden of proving such reason was on him and he placed no material to prove it except the self-seeing deed of agreement dated August 24, 1963. Once the Tribunal disbelieved the story that the minor's investment in the assessee's business was considered to bring good luck to the assessee, it followed that the payment to the minor was not a diversion of income by an overriding or paramount title, but was merely an application by the assessee of the income earned by him.
6. We shall now take up the first question referred to us. That question reads :
' Whether, on the facts and in the circumstances of the case, the payment to the minor, Virendra Bahadur, under the agreement dated August 24, 1963, is a legitimate business expenditure and an allowable deduction '
7. As the Tribunal disbelieved the story of good luck being brought to the assessee's business on account of the minor's investment of Rs. 2,000 in the assessee's business, it followed that the payment to the minor of any amount in excess of a reasonable rate of interest on his investment of Rs. 2,000 could not be treated as a legitimate business expenditure and an allowable deduction. - In the view we take, it is unnecessary to refer to a large number of decisions relied on by the learned counsel for the assesseeand the learned standing counsel.
8. In the light of the foregoing discussion, our answers to the questions referred to us are as follows :
' 1. On the facts and in the circumstances of the case, the payment to the minor, Virendra Bahadur, under the agreement dated August 24, 1963, is not a legitimate business expenditure and an allowable deduction except to the extent of reasonable interest on the amount invested by him in the assessee's business.
2. On the facts and in the circumstances of the case, there was material before the Tribunal to conclude that the payment by the assessee of a share of his profit to the minor, was not a diversion of income by an overriding or paramount title, but an application of the assessee's income.'
9. In the circumstances of the case, we direct the parties to bear their own costs.