9911796707
TMI Blog1998 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... consists of eight partners, in their capacity as kartas of the Hindu undivided family (HUF). The partners, in the capacity of kartas of the Hindu undivided family, it is said, deposited certain amounts in the firm. Interest payments were made to them in respect of the deposits they have made in the firm. During the assessment year 1982-83, the question that arose for consideration was as to whether the interest payments made to them can qualify for deduction in the computation of the income under section 40(b) of the Income-tax Act, 1961 (Act No. 43 of 1961, for short "the I. T. Act"). The Assessing Officer disallowed the total interest payments aggregating to Rs. 14,528 under section 40(b) of the Income-tax Act. The assessee appeale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2,35,185 paid to five partners. The interest payments are relatable to the deposits made by the five partners in their capacity as kartas representing their respective Hindu undivided families. The order so passed was challenged by way of revision under section 264 of the Income-tax Act, before the Commissioner of Income-tax, Madurai, who in turn dismissed the revision, by order dated September 25, 1987, and confirmed the assessment order made by the Assessing Officer. The assessee-petitioner challenged the order of the Commissioner in writ proceedings before this court. The said writ petition was pending before a learned single judge of this court It appears, a representation had been made to the said learned single judge that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved for consideration in these actions did not at all arise at any anterior point of time before the apex court of this country and the plain fact is that such a question arose for consideration before the apex court in the case of Brij' Mohan Das Laxman Das v. CIT [1997] 223 ITR 825. In that case, the question, which arose for consideration by way of a reference was as below : "Whether, the Tribunal was correct in allowing the assessee's claim for interest paid on the credit balance in the individual account of Sri Rajendra Kumar ?" The factual matrix necessary to understand the question so posed is as below : The assessee-Brij Mohan Das Laxman Das, is a partnership firm having three partners. One of them is Rajendra Kumar. He was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount was rightly disallowed by the Income-tax Officer and that the Tribunal was not right in allowing the assessee's appeal. The High Court had, however, certified the case under section 261 of the Income-tax Act. The Supreme Court, after taking into consideration Explanations 1 to 3, subsequently added to the said section and the various hues of views expressed by various High Courts relatable to the Explanations so added, ultimately held that the interest paid to Rajendra Kumar could not be disallowed in the firm's assessment for the assessment year 1974-75, by recourse to section 40(b) of the Income-tax Act. The sum and substance of the rationale for arriving at such a conclusion is reflected in the relevant paragraph at page 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not fall within the mischief of clause (b) of section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros.' case [1988] 174 ITR 346 that Explanation 2, in the context of clause (b) of section 40, is declaratory in nature. Accordingly, we allow this appeal, set aside the judgment of the High Court and answer the question referred under section 256 in the affirmative, i.e., in favour of the assessee and against the Revenue." In the face of the ratio laid down by the Supreme Court in the case of Brij Mohan Das Laxman Das [1997] 223 ITR 825, it goes without saying that the question under reference in the tax case (reference) has to be necessarily answered in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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