9911796707
TMI Blog2004 (12) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... 233. 2. The learned Commissioner of Income-tax (Appeals) erred in holding that interest paid by the appellant was covered by the scope of disallowance under section 14A. 3. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the appellant was entitled to receive interest and salary from the partnership firms wherein the amount borrowed was invested and the appellant was a partner." 2. This is the case of an individual deriving salary income, house property income, business income etc. During the course of assessment proceedings it was asked by the Assessing Officer to justify the claim of interest paid of Rs. 9,14,233 on borrowed funds invested towards capital in the firm in which the assessee is a partner. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard. He has also mentioned that the assessee has not shown any receipt of interest from the partnership firm during the year though in the past interest income was shown, therefore, adopted a device to avoid the tax by borrowing money from the group of family concerns. Ld. CIT(A) has also distinguished a decision of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC), cited from the side of the assessee, and, confirmed the disallowance of interest. 4. On behalf of the appellant a decision of Santosh Kumar Agrawal v. Asstt. CIT [2001] 78 ITD 394 (Mum.) (SMC) was cited and on behalf of revenue ld. D.R. has relied upon the orders of the authorities below. 5. Parties heard and the orders of the authorities below perused. The issue is simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits & gains' consequently a clause (b) was amended w.e.f. 1-4-1993 according to which in the case of any firm any payment of salary, bonus, remuneration etc. to any partner who is a working partner is allowable. This clause also provides that the disallowance can only be made if such partner is not authorised in accordance with the terms of a partnership deed. So according to new scheme of taxation of the firm and its partners is effective from assessment year 1993-94. The firm itself is taxed at the rates prescribed and the partners are taxed only in respect of remuneration, commission etc. but not in respect of their share of profit from the firm. There is no harm at this juncture to further elaborate that consequent upon the restruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner. In this regard section 10(2A) provides that in computing the total income of any person any income shall not be included in the case of a person being a partner of a firm which is separately assessed as such his share in the total income of the firm. So the Act continuously provides that the share of profit deriving from a firm is not subject to tax in the hands of a partner. If it is so then automatically the provisions of section 14A come in to operation. This section provides that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not fall part of the total income under this Act. The combined reading of both these sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned only in respect of assessability of salary remuneration etc. and deduction there-from. These heads of income are provided to be taxed by the legislature under section 28 of Income-tax Act i.e., as 'profits and gains of business or profession'. With the result though the term salary or remuneration are used but the character of the income is nothing but profits and gains of business. Otherwise also when the section 67 was in operation which now stands omitted w.e.f. 1-4-1993, the salary, remuneration etc. were used to be treated as profits from the firm while computing the income of a partner from the firm. The legislature has recognized this principle and only then enacted a fiction in section 28. Now as per these amendments a remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest paid on moneys borrowed for investment in the firm in which he has become a partner against the amount received by him from the firm as remuneration/salary and assessed under the head 'business'. For this proposition we draw support from the precedents namely CIT v. R.M. Chidambaram Pillai [1977] 106 ITR 292 (SC) and Santosh Kumar Agrawal v. Asstt. CIT [2001] 78 ITD 394 (Mum.) (SMC). With the result in view of the clear provisions of section 28(v) the salary income has to be considered as profit and gains from business and profession and hence interest paid on the money borrowed for the purpose of making capital contribution to the partnership firm has to be fully allowed in the hands of assessee/partner. Resultantly the ground raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
