9911796707
TMI Blog2020 (10) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... mutatis mutandis to the assessment year 2016-17. 4. Facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed from the profit and loss account that the assessee firm has shown gross receipts from production of TV programme at Rs. 2,59,41,372/- and other income at Rs. 53,46,605/-. Out of such business income, the assessee has claimed interest expenses to the tune of Rs. 29,09,769/- in the profit and loss account on partners' capital. The AO also noticed that the assessee has purchased mutual fund to the tune of Rs. 1,42,00,000/- during the relevant assessment year, which is the ancillary activities of the assessee firm. The assessee has not availed any secured loan or other loan for the business activities except an unsecured loan of Rs. 4,24,371/-. The major portion of partner's capital account is invested by the assessee in acquiring of mutual funds and other share transaction, which does not form part of the total income. Further, the assessee has shown dividend income and other long term capital gain to the tune of Rs. 32,30,.069/-,in the return of income as exempted income which does not form part of the total income. From the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs ACIT in ITGA No.187/JP/2017 for A.Y. 2013-14 order dated 31.12.2018 holding that payment of interest to the partners' towards the use of the partner's capital as per the provisions of partnership deed is held not subject to disallowance under section 14A r.w. Rule 8D(ii) of the Act. Ld A.R. submitted that the assessee has not incurred any expenditure in relation to exempt income. Therefore, it was his prayer that the orders of the lower authorities be dismissed by allowing the appeals of the assessee. 7. On the other hand, ld D.R. dutifully supported the orders of lower authorities. 8. We have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. The assessee is claiming that there are no borrowed funds and no expenditure can be directly attributed to earn the exempt income and the Assessing Officer has not recorded his satisfaction for not accepting the assessee's claim. In support of its claim, the assessee has relied on the decision of ITAT Pune in the case of Quality Industries(supra), wherein, on similar situation, it is held that payment of interest to the partners by the assessee firm as per the provisions of the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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(b) as referred hereinabove has only altered the mode of taxation. Needless to say, the Partnership firm is not a separate legal entity under the Partnership Act. It is not within the purview of the Income-tax Act to change or alter the basic law governing partnership. Interest or salary paid to partners remains distribution of business income. 11.3 Relevant here to refer to decision of Hon'ble Supreme Court in the case of CIT vs. R.M. Chimbaram Pillai (1977) 106 ITR 292(SC) relied upon by the Assessee. Supreme Court has held in the case of R.M. Chidambaram Pillai, etc. (supra) held that: "A firm is not a legal person, even though it has some attributes of personality. In Income-tax law, a firm is a unit of assessment, by special provisions, but it is not a full pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, section 36(1)(iii) is not at all applicable for the purposes of computation of interest to partners under section 40(b) of the Act. To put it differently, in view of section 40(b) of the Act, the Assessing Officer purportedly has no jurisdiction to apply the test laid down under section 36 of the Act to find out whether the capital was borrowed for the purposes of business or not. Thus, the question of allowability or otherwise of deduction does not arise except for S. 40(b) of the Act. 11.5 As noted, as per the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 & 110/CTK/2018 order dated 23.9.2019, wherein, it was held thus : "11. Invoking the provisions of Section 14A r.w.Rule 8D, the AO has made the disallowance of Rs. 6,82,43,072/- by observing that the disallowance suo-moto made by the assessee is very less compared to the administrative and employee cost devoted to earn the exempt income. In appeal, the CIT(A) has confirmed the disallowance as there may not be any direct expense and that the assessee has not made any interest payments related to earning of exempted dividends and accordingly, the only way disallowance can be computed proportionately as per Rule 8D(2)(iii) of I.T.Rules. 12. Ld. AR before us submitted that the assessee has already added the sum of Rs. 82,378/- in the computation of income with the (return of income) u/s.14A of the Act in respect of expenses incurred relating to its exempted income and Rule 8D is not applicable. Ld. AR further submitted that this issue has been decided by the Tribunal in ITA No.211/CTK/2016 along with other connected appeals, order dated ITA Nos.106&110/CTK/2018 CO No.30/CTK/2018 12 29.06.2018 for the assessment year 2013-2014. On the other hand, ld. DR relied on the order of AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the average of such investment, the income from which did not form part of the total income instead of total value of investment. For this view, our stand is fortified by the decision of Special Bench in the case of ACIT vs. Vireet Investment (P) Ltd., (2017) 82 Taxman.com 415 (Delhi Trib.)(SB). None of the parties before us, however, have laid any details to examine as to which of the investments have yielded such income which did not form part of the total income. We, therefore, restore the matter back to the file of the Assessing Officer for calculating the disallowance u/s. 14A read with Rule 8D afresh, in the light of observations made in the body of this order above. Accordingly, ground No.4 is allowed for statistical purposes. " In the present case also, none of the parties before us, have submitted any details to examine as to which of the investment yield such exempt income which did not form part of total income. We, therefore, restore the issue to the file of the AO for limited purpose i.e. for calculation of the disallowance u/s.14A r.w. Rule 8D(2)(iii) of the Rules, in the light of our conclusions recorded hereinabove. 10. Thus, the issue is restored to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
