1980 (9) TMI 167 - AT - Income Tax

Summary

Issues:
- Deletion of addition of Rs. 38,098 under the head interest account.

Analysis:
The appeal before the Appellate Tribunal ITAT Patna was directed against the order of the AAC of IT, Patna Range, Patna, concerning the assessment for the assessment year 1976-77. The primary issue in this case was the deletion of an addition of Rs. 38,098 under the interest account. The Income Tax Officer (ITO) disallowed the entire amount of Rs. 38,098, which was paid to the Kartas of the Hindu Undivided Families (HUFs). The assessee contended that the interest payments were made to the HUFs, who were creditors of the firm, and not to the partners individually. The AAC pointed out that the individuals and the HUFs are separate units of assessment, and the ITO was not justified in disallowing the interest payments to the HUFs. The AAC directed the ITO to allow the correct interest paid to the HUFs on the funds invested by them as creditors of the assessee firm.

The Department filed an appeal against the AAC's order, arguing that the deletion of the addition of Rs. 38,098 was erroneous. During the hearing, the Department's representative conceded that the entire amount was indeed paid as interest to the HUFs, who were creditors of the assessee firm. It was also acknowledged that the Kartas were partners in the firm in their individual capacity. The Tribunal found that the AAC had taken a correct legal position in this matter. The Tribunal cited a previous decision and held that the AAC's order was reasonable. Therefore, the Tribunal upheld the AAC's order and dismissed the appeal.

In conclusion, the Tribunal affirmed the AAC's decision to delete the addition of Rs. 38,098 under the interest account, as the interest payments were made to the HUFs, who were creditors of the firm, and not to the individual partners. The Tribunal found that the AAC had correctly applied the law in this case, and the appeal by the Department was dismissed.