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TMI Blog1994 (4) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... income of Rs. 15,893, and on 27-11-1984, the assessment for the assessment year 1984-85 was completed under section 143(1) of the Act, by accepting the income returned. 4. Subsequently, the Assessing Officer noticed that the assessee had not added back, under section 40B of the Act, an aggregate sum of Rs. 69,985 being the interest paid by it to the partners on the ground that such add-back was not called for in the light of the ratio of the Gujarat case of CIT v. Sajjanraj Divanchand [1980] 126 ITR 654. He further found that the decision in the said case was over-ruled by a Full Bench decision of the same High Court in the case of Chhotalal Co. v. CIT [1984] 150 ITR 276. Relying on the said decision of the Full Bench, the Assessing Officer initiated reassessment proceedings under section 147(b) of the Act. The assessee responded by filing a return of income on 27-1-1987, admitting the income as originally assessed under section 143(1) of the Act. And the Assessing Officer completed the reassessment on 11-10-1988 disallowing the said aggregate interest payment of Rs. 69,985 by invoking the provisions of section 40B(b) of the Act. 5. Predictably, the assessee moved the Dy. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. On the jurisdictional issue he contended that even at the time of original assessment, the assessee-firm had placed before the Assessing Officer all the primary facts and had contended that no add-back under section 40(b) was called for in view of the ratio of the Gujarat case of Sajjanraj Divanchand. And this contention was accepted by the Assessing Officer when he made the assessment under section 143(1) of the Act. It should, therefore, follow the recourse taken subsequently by the Assessing Officer of the provisions of section 147(b) was impelled by a mere change of opinion. In this connection Shri Quadir Hoseyn sought to argue that by the time the Assessing Officer made the assessment under section 143(1) on 27-11-1984, the Full Bench decision of the Gujarat High Court in the case of Chhotalal Co. was also available and that if the Assessing Officer failed to apply the ratio of that decision while making the assessment under section 143(1) of the Act, he could not be permitted to invoke the provisions of section 147(b) of the Act simply because sometime late in 1986 the Assessing Officer happened to notice the Full Bench decision. According to Shri Quadir Hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chhotalal Co., the Full Bench of the same High Court had over-ruled its earlier decision in the case of Sajjanraj Divanchand. Now, the assessee's counsel went to the extent of contending that even by the time the assessment was originally made, that is to say, even by 27-11-1984, the said Full Bench decision was available and that simply because the Assessing Officer was not aware of the said decision, he could not be permitted to call to aid the provisions of section 147(b). We are unable to agree. As rightly pointed out by the Departmental Representative, in the case of A.L.A. Firm, the Supreme Court has clearly held that, in a given case, even of the decision subsequently came across by the Assessing Officer was in existence even on the date on which the original assessment was made, the Assessing Officer could invoke the provisions of section 147 because the information that such a decision existed comes to him only much later (see Page 297 of the Report). 13. In view of the foregoing, therefore, we hold that the Assessing Officer validly initiated the re-assessment proceedings in this case. We accordingly dismiss all the related grounds. 14. The assessee-firm, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UFs could not be added-back under section 40(b) of the Act. 18. The key to the said problem, as we see it, is to be found in Explanation 2 to section 40(b) of the Act, inserted by the Taxation Law (Amendment) Act, 1984 with effect from 1-4-1985. The said Explanation clarified that if an individual is a partner in a firm on behalf of the HUF, interest by the firm to such individual otherwise than in his capacity as representative of the HUF will not be taken into account for the purposes of section 40(b). Stated differently, where interest is paid to the karta of a family as representing the family and it is in a same capacity that he is a partner in the firm, the prohibition contained in the section is attracted and the interest paid by the firm to him is to be disallowed. 19. If the principle incorporated in the said Explanation is applied to the facts of the case before us, the answer is obviously that the lower authorities were justified in invoking the provisions of section 40(b) of the Act to make the impugned add-back of Rs. 69,985. The seven persons are partners in the firm in their representative capacity as the kartas of their respective HUFs. Interest has also been cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partner in the firm, the provision contained in section 40(b) is attracted and the interest received by him is liable to be disallowed. In the said case, the proceedings relating to the assessment year 1979-80 were before the Court. Even so, following its decision in Gajanand Poonam Chand Bros. case the Court held that Explanation 2 was merely declaratory. 23. It may here be added that a similar view has been taken of the Explanation by the Andhra Pradesh High Court in the case of N.T.R. Estate v. CIT [1986] 157 ITR 285 and the Punjab and Haryana High Court in the case of Hindustan Steel Forgings v. CIT [1989] 179 ITR 280 and the Madhya Pradesh High Court in the case CIT v. Narbharam Popatbhai and Sons [1987] 166 ITR 534 (FB), to cite a few. 24. True, in the case of CIT v. U.P. Iron Stores [1989] 180 ITR 296, the Allahabad High Court has taken a contrary view namely that the Explanation is only prospective in operation. But as has been pointed out by the ITAT, Madras Bench-A (Special Bench) in the case of ITO v. V.R.V. Co. [1992] 41 ITD 8, the Supreme Court, with reference to the Explanation inserted in section 64 of the IT Act, has observed that even a provision which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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