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TMI Blog1989 (2) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this is produced by adding water 10 times. The Income-tax Officer found that the main raw material i.e. B.H.C. Tech. consumed was 116.59 tons and he ought to have produced 165.9 tons of dust. They had produced only 1,137.5 and so there was a shortfall of 28.35 tons. He enquired the reasons for the shortfall. He was not satisfied with the reasons given by the assessees and so he concluded that there is an understatement to the extent of 28.35 tons. He estimated the market value of this quantity at 22,935. This was included in the assessment. 3. The Appellate Asstt. Commissioner was satisfied that the addition was proper. So he upheld the addition. 4. The assessee is on further appeal before us. Sri Swamy submitted that it is not alwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es "whereas in the interests of domestic peace and harmony, I have decided on 24-10-76 to have a partial partition in my family interest (i.e. share only) in the firm of Jayalakshmi Chemicals Pulveriser, Dhone and with this end in view I have partitioned the said share in the said firm on 24-10-76 in equal parts....". 8. An addition to the partnership deed styled as Codicil was made out on 30th October, 1976. The Codicil purports to replace clause 4 of the original Partnership deed with a new clause. This clause reads as follows:-- " 13. Party of the first part and party of the second part are partners of this firm on behalf of their H.U.Fs., consisting of themselves, their wives and their progeny. " 9. For the asst. year 1978-79, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad stated: " On 24-10-76, there was a partial partition in their respective HUFS. Out of the total property held by the HUFS, the right to share of profit in the firm M/s. Jayalakshmi Chemicals and Pulverisers, Dhone, got divided between Kartha and his son respectively by the two HUFS. The undivided partition of the property (i.e. total property of HUF --- Right to share of profit) kept jointly and hence belongs to their bigger HUFs respectively. The partial partitions are recognised by the Income-tax Department u/s. 171 of Income-tax Act vide order dated 18-5-79. The same issue came before AAC for the asst. year 1978-79 and allowed the same in appeal, stating that, after partial partition the undivided portion of the property belongs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the business. Either they should bring their own capital or they could bring the capital by borrowing funds from others. On the facts of this case, the inference to be drawn here is that the smaller HUFs have brought capital by borrowing from the larger HUFS. If that is the correct finding of fact, then the interest debited represents the interest payable by the smaller HUFs to the larger HUFs. Therefore, the interest has to be disallowed, not under s. 40(b), but as interest not relating to the business of the assessee. It is the interest payable by the smaller HUF, and not by the firm. On these different grounds, we will uphold the order of the Income-tax Officer. 14. In the result, both the appeals stand allowed. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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