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TMI Blog1982 (2) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was raised by the partners of the firm, the payment of interest to LIC on behalf of the partners could not be allowed. He, therefore, added Rs. 2,126 while computing the assessee's income. 2. The AAC has confirmed this order. 3. Before us, it has been submitted by the learned counsel for the assessee that the lower authorities have not considered the facts of the case properly. It was submitted that this loan has been in existence for several years and originally the loan of Rs. 50,000 had been raised from the LIC against the security of insurance policies of certain persons some of whom were the partners of this firm. The total value of the policies which was given as security was as under: -------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Shri Manohar Pal Aggarwal ceased to be partners in 1977. Shri B.M. Aggarwal was representing the family trust and was not a partner himself in his individual capacity. It was contended that the interest was paid by the firm to the LIC and not to the partners and the loan which had been taken was credited in the account of the LIC and no part of it was credited to the capital account of any of the partners. It was, therefore, contended that the firm has never paid any interest to any of the partners and the interest which has been paid to the LIC was an allowable deduction as the loan has been utilised for the purpose of the firm. 4. The learned counsel has also referred to the order of the Commissioner (Appeals) in the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion paid by the firm to another partner of the firm is not deductible in computing the income chargeable in the hands of the firm. This provision makes an exception to the general rule regarding the deduction to be allowed in computation of income. It is true that section 40(b) of the Income-tax Act, 1961 ("the Act"), is absolute in its terms and makes no distinction between the payment by way of interest, etc., made to a partner as a partner and such payment made to him in any other capacity. The requirement, however, is that the payment should be to any partners of the firm. Unless the interest is paid to the partner, the provisions of section 40(b) cannot be invoked. 7. Now in the present case the firm has raised the loan from the LIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to be paid to a partner when in any way it benefits him. Here neither the money comes to the partner nor in his account. It cannot, therefore, be held that the firm had paid any interest to the partner merely because the policies, which have been offered as security, belonged to the partners. In the present case, we also find that the interest paid to partners is not reflected in their share income and the disallowance has gone to increase the share income of each partner equally though they might have contributed different amounts by way of security. The disallowance of interest paid to partner is from the point of view of considering all the benefits which come to a partner from the firm for the purpose of computation of firm's inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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