9911796707
TMI Blog1996 (10) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the provisions of section 40(b) are not attracted in respect of the sum of Rs. 75,439 being the interest paid to the partner, Shri Ponniah, on loan taken by him and advanced to the firm ?" The assessee is a partnership firm and the assessment year involved is 1979-80. For the previous year being the calendar year ended with December 31, 1978, the assessee-firm had no bank account of its own. Mr. Ponniah, who was a partner, was previously carrying on identical business as carried on by the assessee. After the conversion of the business into partnership, no separate bank account was opened by the firm. All the transactions of the firm were put through the bank account in the name of Mr. Ponniah. In respect of such transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax (Appeals) also agreed with the view taken by the Income-tax Officer in disallowing a sum of Rs. 75,439 under section 40(b) of the Act. Aggrieved, the assessee filed a second appeal before the Appellate Tribunal. The Appellate Tribunal believed the submissions made by the assessee-firm that inasmuch as the firm had no bank account, the amount was borrowed through the partner, Mr. Ponniah, and the interest paid on the borrowed amount really reached the bank and the interest was not paid to Mr. Ponniah. Therefore, section 40(b) of the Act has no application to the facts arising in this case. Accordingly, the Tribunal held that the interest payment made by the firm would not be hit by the provisions of section 40(b) of the Act. In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ponniah since he is only acting as a conduit pipe, between the bank and the firm. Therefore, according to learned counsel, though the interest was paid by the partnership firm to Mr. Ponniah, it would really be payment of interest to the bank on the amount borrowed. Therefore, inasmuch as no interest was paid to the partner, the provisions of section 40(b) would not be applicable to the facts of this case. We have heard both learned standing counsel for the Department as well as learned counsel for the assessee. The fact remains that the assessee-firm made an interest payment of Rs. 75,439 to its partner, Mr. Ponniah. According to the assessee-firm, the amounts were borrowed from the bank through Mr. Ponniah since the partnership firm had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance-sheet shall be prepared in accordance with the profit and loss account statement. Two account books and the balance-sheet were produced but in those documents there is no mention with regard to the borrowal of the amounts from the bank or payment of any interest to the bank as such. But the firm's account would go to show that the amount was borrowed from the partner, Ponniah, and the interest thereon was paid to him. Under such circumstances, in the absence of any evidence on the side of the assessee-firm to show that the amount was really borrowed from the bank and the interest was paid only to the bank and not to the partner, Mr. Ponniah, it is not possible to accept the case put forward by the assessee-firm that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the loans taken by the partners had been transferred to the bank's account of the assessee-firm on the same day on which the loans were taken. In the books of account of the assessee-firm, the amount borrowed stood credited to the bank's account and the interest on the amounts borrowed was paid directly to the bank. Apart from that, there was a clear finding by the Tribunal to the effect that it was the assessee-firm which had borrowed money from the bank through its partners. Since it was the assessee-firm which had borrowed money for the purpose of business, the Gujarat High Court held that the interest paid to the bank could not be disallowed under section 40(b). But, according to the facts arising in the present case, we have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
