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TMI Blog2000 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ting relief under section 80HH of the Income-tax Act, 1961, the gross profit has to be determined after including therein interest/salary paid by the assessee to its partners which are disallowable under section 40(b) of the Income-tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the order of rectification passed under section 154 of the Act by the Income-tax Officer was liable to be cancelled?" We have heard learned counsel, Mr. Naik, appearing for the Revenue. None has appeared for the assessee. The facts giving rise to the question pertaining to the present case are as under: The assessee is a partnership firm. For the assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was constrained to Approach the Tribunal. The Tribunal had allowed the appeal and had observed that the assessee could not have been deprived of the benefit under the provisions of section 80HH, so far as the amount of Rs.93,558 was concerned and had directed the Assessing Officer to give the said benefit to the assessee. In the circumstances stated hereinabove, at the instance of the Revenue, the question which has been referred to this court is whether the amount of interest paid by assessee-firm to its partners can be included in the profits of the assessee for the purpose of determining the benefit to be given to the assessee-firm under the provisions of section 80HH. Section 80HH, at the relevant time read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections for the purpose of determining the gross total income under the head "Profits and gains of business or profession" were sections 28 to 44D. Thus, the provisions of section 40(b) had to be considered by the Assessing Officer for the purpose of determining the gross total income of the assessee. As per the provisions of section 40(b) of the Act, in the case of any firm, certain amounts are not to be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Subject to the provisions of the said section, interest paid to the partners is one of such amounts which is not to be deducted. Thus, if any amount is paid by the assessee-firm by way of interest to its partners, subject to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by allowing deduction to the tune of 20 per cent. of the amount of interest which was paid by the assessee to the partners, as the said amount was forming part of the "profits and gains of business or profession". Thus, we are of the view that for the purpose of calculating relief under section 80HH of the Act, the gross profit is to be determined after including therein the amount of interest/salary which might have been paid by the assessee-firm to its partners and disallowed under the provisions of section 40(b) of the Act. We, therefore, answer the first question in the affirmative and in favour of the assessee and against the Revenue. The second question with regard to the validity of the order of the Tribunal cancelling ..... X X X X Extracts X X X X X X X X Extracts X X X X
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