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TMI Blog2019 (1) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Subhash Porwal (CA) For the Revenue : Shri J. C. Kulhari (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A), Ajmer dated 30.01.2017 for A.Y. 2013-14 wherein the assessee firm has challenged the sustenance of disallowance of interest paid to its partners. 2. Briefly stated, the facts of the case are that the assessee is a partnership firm engaged in business of trading of shares, derivatives, futures, call and options on registered stock exchanges. During the course of assessment proceedings, on examination of assessee s financial statement, the Assessing Officer obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee firm as per the provisions of the partnership deed is not an expenditure which is subject to the provisions of section 14A and in support, reliance was placed on the decision of Co-ordinate Bench in case of Quality Industries v. JCIT [2016] 73 taxmann.com 363 wherein it was held as under:- 10. We have carefully considered the rival submissions. The predominant question that arises for our consideration is whether payment of interest to the partners by the partnership firm toward use of partner's capital is in the nature of 'expenditure' or not for the purposes of section 14A of the Act and consequently, whether interest on partners capital is amenable to section 14A or not in the hands of partnership firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary sense of term. The Section 28(v) treats the passive income accrued by way of interest as also salary received by a partner of the firm as a 'business receipt' unlike different treatments given to similar receipts in the hands of entities other than partners. In this context, we also note that under proviso to section 28(v), the disallowance of such interest is only in reference to section 40(b) and not section 36 or S. 37. This also gives a clue that deduction towards interest is regulated only under section 40(b) and the deduction of such interest to partners is out of the purview of s. 36 or 37 of the Act. Notably, there has been no amendment in the general law provided under Partnership Act 1932. The amendment to section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57 (SC) that the business of the firm is business of the partners of the firm and, hence, salary, interest and profits received by the partner from the firm is business income and, therefore, expenses incurred by the partners for the purpose of earning this income from the firm are admissible as deduction from such share income from the firm in which he is partner. Thus, the 'partnership firm' and partners have been collectively seen and the distinction between the two was blurred in the judicial precedents even for taxation purposes. 11.4 Section 4 of the Indian Partnership Act 1932 defines the terms partnership, partner, firm and firm name as under : Partnership is the relation between persons, who have agreed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of the Act, the interest paid by the firm and claimed as deduction is simultaneously susceptible to tax in the hands of its respective partners in the same manner. In the same vain, the firm is merely a compendium of its partners and its partners do not have separate legal personalities under the basic law as discussed. The interest paid to partners and simultaneously getting subjected to tax in the hands of its partners is merely in the nature of contra items in the hands of the firms and partners. Consequently interest paid to its partners cannot be treated at par with the other interest payable to outside parties. Thus, in substance, the revenue is not adversely affected at all by the claim of interest on capital employed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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