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TMI Blog2005 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... K. AGRAWAL., RAJES KUMAR. JUDGMENT The judgment of the court was delivered by R.K. Agrawal J.-In Income-tax Reference No. 226 of 1992 relating to the assessment year 1983-84, the Income-tax Appellate Tribunal, Delhi (hereinafter referred to as "the Tribunal"), has referred the following question of law under section 256(2) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was wrong in holding that the interest charged by the firm, M/s. Eves Picture House, on the debit balance of the assessee-partner in his capital account was allowable as expenditure incurred to earn his share of profit under section 67(3) from the firm?" Whereas in Income-tax Reference No. 82 of 1997, relating to the assessment years 1984-85 and 1985-86, the Tribunal has referred the following question of law under section 256(1) of the Act, for opinion to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was wrong in law in holding that the interest charged by the two firms, M/s. Eves Picture House and M/s. Apsara Cinema, on the debit balance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the amount of interest paid by the assessee is not for carrying out business or not for bringing in capital for partnership firm as a partner, the same cannot be allowed as it would be expenditure of a personal nature. In support of his submission he has relied upon the following two decisions: (1) S. Gopal Reddy v. CIT [1988] 170 ITR 660 (AP); and (2) C. Bhaskaran Nair v. CIT [1990] 185 ITR 15 (Ker). Sri S.P. Kesarwani, learned counsel for the respondent-assessee, however, submitted the provisions of section 67(3) of the Act, which permits deduction of interest under certain circumstances, is not exhaustive. According to him it is now a settled law that though a firm and its partners are distinct assessees for the purposes of income-tax, the Act still recognises the principle that a firm is only a compendious name for its partners and that the business carried on by the firm is also a business carried on by each of the partners too. He thus submitted that any interest paid by a partner to the firm on his debit balance is towards carrying on business and, therefore, is entitled for deduction. In support of his aforesaid pleas he has relied upon the following decisions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is true as held by the apex court in Garden Silk Weaving Factory [1991] 189 ITR 512 that the Act still recognises the principle that a firm is only a compendious name for its partners and that the business carried on by the firm is also a business carried on by each of the partners too but that will not make the interest paid by the respondent-assessee to the firm as interest paid by the partner for carrying on the business of the firm for the simple reason that in the present case the respondents-asses-sees have borrowed money from the firm for their personal use and not for the purpose of business of the firm. In the case of Ramniklal Kothari [1969] 74 ITR 57 the apex court has held that the business carried on by a firm is business carried on by the partners. The profits of the firm are the profits earned by all the partners in carrying on the business. The share of the partner is business income in his hands for the purpose of section 10(1) of the Indian Income-tax Act, 1922, and being business income, expenditure necessary for the purpose of earning that income and appropriate allowances are deductible therefrom in determining the taxable income of the partners. The respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing a partner's share in the income of the firm and that the provisions in sections 30 to 37 of the Act, which provide for various deductions, have no application to the case of a partner's share in the income of the firm. The Andhra Pradesh High Court has held that there is nothing which either expressly or impliedly precludes the application of sections 30 to 37 to the case of a partner's share in the income from the firm, that section 67 and sections 30 to 37 have to be read together in such cases and that the Tribunal was right in holding that the deduction was permissible in respect of the building owned by the assessee. In the case of Smt. Shanti Devi Jalan [1983] 139 ITR 152, the Calcutta High Court has held that section 67(3) of the Act is not exhaustive. It merely provides for a case where a particular interest paid by a partner of a firm is allowable as a deductible expense. But it is not comprehensive in the sense that it cannot be said that no other kind of interest can be deductible. If such interest complies with the requirements of the other provisions of the Act, which allow a deduction, there is no reason why such deduction should not be allowed merely beca ..... 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