9911796707
TMI Blog2015 (6) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... Originally it consisted four partners and on 06.10.2000, one more partner was inducted as a partner. On 20.10.2001, three partners retired from the partnership firm and the business was continued only with the remaining two partners. The assessee firm borrowed a sum of Rs. 75,00,000/- from the Bank for the purpose of settling the account to the retiring partners and the claim deducted of Rs. 5,04,803/- under Section 36(1)(iii) towards interest on the borrowal made to be Bank. The Assessing Officer rejected the claim of the assessee on the ground that the borrowal has been made for the purpose of discharging the personal liability for the continuing partners of the firm and the payment made to the retiring partners has nothing to do with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its submission made before it? 5. Whether the tribunal in coming to its conclusion has acted judicially in accordance with the principles laid down by the Supreme Court in 66 ITR 714?" 4. Learned Counsel for the assessee assailing the impugned order contends that the borrowal of the funds for the firm is for the purpose of discharging the liability of the firm to the retiring partners and therefore, it falls under Section 37 of the Partnership Act. Borrowal is only for the purpose of business. If the said amount has not been paid in terms of partnership deed, out going partners had right to proceed against the firm to recover the said amount, and in order to avoid such litigation and to protect the interest of the firm, the aforesaid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must also satisfy three conditions, namely, (a) it (the expenditure) must not be an allowance of the nature described in clauses (i) to (xiv), (b) it must not be in the nature of capital expenditure or personal expenses of the assessee, and (c) it must have been laid out or expended wholly and exclusively for the purpose of his business. It cannot be disputed that the expression "for the purpose of business" occurring in s.10(2) (iii) as also in s.10(2) (xv) is wider in scope than the expression "for the purpose of earning income, profits or gains" occurring in s.12(2) of the Act and, therefore, the scope for allowing a deduction under s. 10(2) (iii) or 10(2) (xv) would be much wider than the one available under s.12(2) of the Act. This Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in respect of expenditure under Section 10(2)(xv), the assessee has to satisfy three conditions: (a) the expenditure must not be an allowance in the nature described in clauses (i) to (xiv); (b) it must not be in the nature of capital expenditure or personal expenses of the assessee; (c) it must have been laid out or expended wholly and exclusively for the purpose of business. 7. In the instant case, reconstituted partnership deed is produced which is dated 19.10.2011 which provides that in consideration of a sum of Rs. 1,30,00,000/- payable to the retiring partners, a sum of Rs. 55,00,000./- has already been paid by the continuing partners to the retiring partners. The balance amount of Rs. 75,00,000/- shall be paid by the State Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recital that the balance amount of Rs. 75,00,000/-shall be paid by State Bank of India, out of the loan account sanctioned to the firm to the retiring partners discloses the real intention of the transactions between the parties. Because the continuing partners agreed to pay a sum of Rs. 1,30,00,000/- as consideration for the retiring partners to relinquish all their right title and interest with the partnership firm and though they had already paid a sum of Rs. 55,00,000/, on the date of reconstituted deed and the balance amount payable is out of the loan sanctioned by the State Bank of India, the said amount of Rs. 75,00,000/- has nothing to do with business of the firm. But the said amount was directly made over to the retiring partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner of his estate, as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section". Thus, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property. 10. The amount of Rs. 1,30,00,000/- paid is not a share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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