9911796707
|
Home
Issues involved: Interpretation of section 40(b) of the Income-tax Act, 1961 regarding disallowance of interest payment to a partner of a firm.
Summary: The High Court of Karnataka addressed the issue of whether interest payment to a partner of a firm can be disallowed under section 40(b) of the Income-tax Act, 1961. The case involved a firm where a partner had passed away, and the deceased partner's widow, Smt. Gangamma, became a partner with effect from the date of her husband's death. The firm paid interest to Smt. Gangamma from her individual funds, which the Income Tax Officer (ITO) disallowed under section 40(b). The Assessing Officer (AO) disallowed the interest payment under section 40(b), but the Appellate Authority Commissioner (AAC) allowed the claim, stating that the provision was not attracted as the payment was made to Smt. Gangamma in her individual capacity. The Department appealed to the Tribunal, which held that since Smt. Gangamma became a partner as the executrix of the deceased partner's estate, the interest paid to her from her separate funds was not covered by section 40(b). The High Court analyzed section 40(b) of the Income-tax Act, which prohibits deductions for payments of interest, salary, bonus, etc., made by a firm to any partner. The court emphasized that the section applies regardless of the capacity in which the partner joins the firm, whether as an individual or a representative of another entity. Referring to a previous case, the court clarified that the bar under section 40(b) is immediately attracted once an individual becomes a partner, irrespective of their dual capacity. In conclusion, the High Court ruled in favor of the Revenue, stating that the interest payment to Smt. Gangamma, a partner of the firm, was disallowed under section 40(b) of the Income-tax Act, 1961.
|
