9911796707
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Issues:
1. Non-deduction of interest payments to partners under Section 40(b) of the Income Tax Act, 1961. 2. Disallowance of motor car expenses and depreciation for non-business purposes. 3. Disallowance of miscellaneous expenses. Detailed Analysis: Issue 1: Non-deduction of Interest Payments to Partners under Section 40(b) of the Income Tax Act, 1961 The primary contention in the appeal for the assessment years 1970-71 and 1971-72 revolves around the non-deduction of interest payments made to partners under Section 40(b) of the Income Tax Act, 1961. The firm, consisting of 9 partners, had paid interest to the HUFs of certain partners and to individual partners on their personal deposit accounts. The sums involved were Rs. 20,923 for 1970-71 and Rs. 14,351 for 1971-72. The Income Tax Officer (ITO) held that these interest payments constituted payments to partners and thus could not be deducted in computing the business income of the firm. The Appellate Assistant Commissioner (AAC) upheld this view. The assessee firm argued that interest paid to partners in their individual capacity should not be disallowed under Section 40(b) if the deposits were made from personal funds, and not from the funds of the HUFs they represented. The firm cited that the interest paid to Jyotindra's HUF and to Mohanlal, Chimanlal, and Bharat on their personal deposits should not be disallowed as these were distinct from their partnership capacities. The Tribunal agreed with the assessee's contention. It distinguished between salary payments and interest payments, stating that while salary payments are for services rendered by the partner, interest payments can come from various distinct sources. It concluded that only interest paid to a partner representing his HUF should be disallowed under Section 40(b), not interest paid on personal deposits. Therefore, the Tribunal reversed the orders of the lower authorities and deleted the add-back of interest for both assessment years. Issue 2: Disallowance of Motor Car Expenses and Depreciation for Non-business Purposes For the assessment year 1970-71, the ITO had disallowed 1/4th of the motor car expenses and depreciation, attributing them to non-business purposes. In the subsequent year, the AAC limited this disallowance to 1/5th. The Tribunal found it reasonable to restrict the disallowance to 1/5th of car expenses and depreciation for the year under consideration, aligning with the subsequent year's decision. Issue 3: Disallowance of Miscellaneous Expenses For the assessment year 1971-72, the ITO disallowed Rs. 2,000 out of miscellaneous expenses totaling Rs. 17,000. The Tribunal noted that a similar disallowance was made in the earlier year and found the disallowed amount reasonable. Therefore, no interference was called for in this regard. Conclusion The appeals were allowed to the extent indicated, with the Tribunal reversing the interest add-back under Section 40(b) and modifying the disallowance of motor car expenses and depreciation. The disallowance of miscellaneous expenses was upheld.
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