1. In this appeal by the assessee the grievance against the order of the AAC dated 22-10-1981 is that he erred in law as well as on facts in sustaining the disallowance of Rs. 12,000, claimed by the appellant on account of petrol expenditure and depreciation on the car owned by him.
2. In order to determine the above issue, the following facts are relevant and will have to be taken into consideration. The assessee is a partner in many firms including the firm of Sood Bhandari & Co., Sirhind. This firm has its head office at Sirhind and branch office at Sadhugarh. This partner resides at Sirhind. In all, there are three partners. When the firm was constituted, he did not own a car. It is common ground that in the instrument evidencing the partnership under the name and style of 'Sood Bhandri & Co.', there was no stipulation as to the expenditure to be paid to this partner with regard to the business of the firm that he may help to carry on. The business of the firm is that of commission agents because its income is from kachi arhat and also from dealings in grains, etc. For the assessment year under appeal, the share of the assessee from the firm was Rs. 24,769.
The assessee had purchased a car during the previous year relevant to the assessment year under appeal and while filing the return, he made a claim of Rs. 12,000 as a deduction from his share against the income of share of profit from this firm on the ground that Rs. 12,000 consisted of petrol expenditure and depreciation on the car used for carrying on the business of the firm as a partner. This claim was rejected by the ITO and the rejection was upheld by the AAC. Hence, the present proceedings.
3. Relying on the Supreme Court judgment in the case of Ramniklal Kothariv. CIT 74 ITR 57, the learned counsel for the assessee submitted that it has been held by the Supreme Court that an assessee who was a partner in four firms but did not carry on any independent business, was entitled to deduct from his share of the profits from the firms amounts paid as salary and bonus to staff, expenses for maintenance and depreciation of motor car and travelling expenses met by him in earning the income from the firms. The learned counsel for the assessee submitted that in this case also, the assessee has share income from three firms and has no independent business of his own. It was contended that factually he was travelling between Sirhind and Sadhugarh for purposes of the business of the firm and was also going to various villages for disbursement of amounts to zamindars, who were given advances to make sure that they would sell their produce through the assessee. As such the amount was admissible and should have been allowed.
4. The learned counsel for the assessee relied on the judgment of the Gujarat High Court in the case of Matubai Chunilal Patel v. CIT  66 ITR 408 to emphasize the contention that the claim of the assessee, a partner in a firm, to deduct half of the motor expenses, including depreciation, from his share income from the partnership, on the ground that it related to his carrying on the business, was allowed by the Hon'ble High Court, on a reference, by holding that, on the facts and in circumstances of the case, the assessee had incurred this expenditure wholly and exclusively for purposes of the business of the firm and, therefore, the amount was deductible from his share income.
5. Realising that the judgment of the Hon'ble Supreme Court in the case of Ramnikal Kothari (supra) was under the Indian Income-tax Act, 1922 (the '1922 Act') the learned counsel for the assessee submitted that the judgment of the Gujarat High Court is under the 1961 Act and related to the assessment year 1962-63. He also submitted that the provisions of the 1922 Act as regards the claim of the assessee and the section under which it is to be allowed are in pari materia under the 1961 Act. For this he relied on the Patna High Court judgment in the case of CIT v. Atma Ram Modi  71 ITR 199 wherein their Lordships have held that if a partner is able to establish in any case that the expenditure claimed by him was incurred as a matter of commercial expediency and for purpose of earning profits from the partnership business, the partner would be entitled to claim the deduction of the amount under Section 10(2)(xv) of the 1922 Act or under the general principle laid down by the Privy Council in CIT S.M. Chitnavis  2 Comp. Cas. 464.
6. The revenue opposed these submissions strongly and pointed out that the ITO has observed that there is no evidence produced to show the use of the car for carrying on the business of the firm, that there was no expediency shown for even purchasing the car for purposes of the business of the firm and that there was no clause in the partnership deed that he would carry on the business of the firm with a transport of his own. The orders of the authorities below may, therefore, be confirmed.
7. After careful consideration of the rival submissions, the order of the authorities below and on perusal of the judgments cited, it is clear that the claim of the assessee is admissible. The Supreme Court in the case of Ramniklal Kothari (supra) has laid down a general proposition that the business carried on by a firm is business carried on by the partners. Profits of the firm are profits earned by all the partners in carrying on the business. The share of the partner is business income in his hands for purposes of Section 10(1) of the 1922 Act and being business income, expenditure necessary for purposes of earning that income and appropriate allowances are deductible therefrom in determining the taxable income of the partners. Taking into consideration the general proposition of law laid down by the Supreme Court, the Gujarat High Court and the Patna High Court that if the partner expends an amount in earning the share of profit from a firm, he can, on showing its actual expenditure, be allowed a deduction from the total income, the case of the assessee is to be examined (sic). The authorities below have not bifurcated the amount of Rs. 12,000 as to the expenditure on petrol and the depreciation on car. However, it is common ground that the car was new and was purchased during the previous year relevant to the assessment year under appeal. It was clarified at the bar by the learned counsel for the assessee and by the assessee who was present in the court, that the total expenditure on petrol was Rs. 3,500 and he claimed Rs. 2,000 only as relating to the business activities of the firm from which he earned the profit.
Applying the above laid down principles by the Hon'ble Courts, it is held that the expenditure of Rs. 2,000 incurred by the assessee was an expenditure wholly and exclusively laid out for carrying on the business and earning business income. The share of the profits of the assessee from various firms including the firm Sood Bhandari Co., therefore, constituted business income in his hands. Against this business income, the assessee is entitled to deduct the expenditure incurred actually for earning this income and depreciaiion on the car.
It is found that the assessee had actually used the car for this purpose because the activities of the firm, the distance between the head office and the branch office and participation of the assessee in the business of the firm justify it. I, therefore, hold that the assessee is entitled to the deduction of Rs. 2,000 as petrol expenditure and only 1/2 of the depreciation. The ITO is directed to allow Rs. 2,000 as expenditure on petrol and 50 per cent of the depreciation while computing the total income of the assessee.