2002 (12) TMI 194 - AT - Income Tax

Summary

Issues:
1. Status of the firm vs. AOP
2. Disallowance of interest paid to partners

Issue 1: Status of the firm vs. AOP

The appeal by the Department was against the order of the CIT(A) regarding the status of the firm. The AO considered the assessee as AOP instead of a registered firm, while the CIT(A) directed assessment as a firm. The assessee claimed firm status, citing the partnership deed filed for the asst. yr. 1974-75. The AO required a certified copy for the asst. yr. 1993-94, which the assessee did not provide. The CIT(A) ruled in favor of the assessee, stating that sub-s. (3) of s. 184 applied, allowing assessment as a firm without a new partnership deed. The ITAT upheld the CIT(A)'s decision, noting no change in the partnership deed and continuous assessment as a firm.

Issue 2: Disallowance of interest paid to partners

The Department challenged the deletion of an addition made by the AO for disallowance of interest paid to partners. The AO disallowed interest based on a higher rate than specified in the partnership deed. The CIT(A) allowed the claim, citing the partnership deed's provision for varying interest rates by mutual consent. The ITAT found that the partners had agreed to change the interest rate, and the interest paid @ 18% was within the limit set by the Act. The ITAT dismissed the appeal, upholding the CIT(A)'s decision that the interest payment was authorized by the partnership deed and permissible under the law.

In conclusion, the ITAT upheld the CIT(A)'s decision on both issues, confirming the assessment as a firm and allowing the interest payment to partners as per the partnership deed's provisions.