9911796707
TMI Blog1984 (5) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... Withdrawals 1,79,535 Share of profit 28,311 Interest 1,47,257 Share of profit transferred to HUF 28,311 Balance brought down 18,74,056 ----------------- ----------------- 19,88,059 19,88,059 ----------------- ----------------- 3. For the other two accounting years also, the position was the same. There was debit balance to which interest was debited. For the year ended 31-3-1977, interest debited was Rs. 1,04,852 and for the year ended 31-3-1978 interest was Rs. 1,16,886. Part of the brought forward debit balance was said to be the withdrawals made on account of the payment of his personal income-tax over the years. 4. For the assessment years 1976-77 and 1977-78, the assessee did not make any claim for deduction under section 80V before the ITO. However, he moved a revision petition under section 264 of the Act. The Commissioner by his order dated 3-9-1979 set aside the assessments and directed the ITO to allow the deduction after verifying the assessee's claim and in accordance with law. In the assessment for 1978-79, the claim was made before the ITO himself. 5. For the assessment year 1976-77, the ITO held that under section 80V only borrowals made for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of taxes under the Act. There is nothing in the section which states that the taxes paid should have been after 1-4-1976. Unless we add 'after 1-4-1976' at the end of the section, it would not be possible to agree with the department's interpretation. It is well settled that a taxing statute must be read as such and nothing should be added or subtracted to the words. 10. Similarly, there is nothing in the section to suggest that the borrowings should be after the date the section has come into force. All that is required is there should be payment of interest during the accounting year. The taxes could have been paid prior to 1-4-1976. But the borrowals must be outstanding on 1-4-1976 and the assessee should be liable for payment of interest thereon. If these conditions are satisfied, deduction will be available under section 80V. 11. The next issue to be decided is, is there a borrowal at all ? There is a legal aspect to it as well as factual. We will first deal with the factual aspect. The Commissioner has given a finding there is not. He points out that the drawings of this year is less than the receipts credited for the three years under consideration. But Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case can be understood in the following manner. Right from the accounting year ended 31-3-1962, the assessee has only a debit balance in the books of account of the firm. This debit balance which stood at 0.03 thousand on 31-3-1962 had risen to Rs. 18.74 lakhs by 31-3-1976. The payment of taxes and other withdrawals would necessarily increase the debit balances. Therefore, any withdrawal made from the firm, whether for payment of taxes or for personal expenses comes only from the borrowed funds. This submission assumes that after a debit balance comes into existence, each rupee deposited first would be appropriated to the payment of the borrowals. So there is nothing kept separate, which can be drawn upon. 16. We think the assessee is right. Now the firm is maintaining only one account. It is to this account the income receipts of the assessee are credited. In this background of fact that the assessee has a debit balance, the question would be how the receipts which are credited to his account is to be treated ? We are of the opinion that section 60 of the Indian Contract Act, 1872, containing the rules of appropriation would be applicable. This section says that where the debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a business. 'Firm' is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law a firm is a unit of assessment, by special provisions, but is not a full person which leads to the next step that since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners . . . " It would be seen from the above, that the Supreme Court is of the opinion that there cannot be a relationship of an employer and employee between a partner and the firm. Later quoting Lindley on Partnership, the Supreme Court observed : "The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, Courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm ; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it ; any change amongst them destroys the identity of the firm ; what i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the creditor is the firm. We have not accepted that submission but have substituted another creditor in the firm's place. In our opinion, it is open for the Tribunal to do so. The assessee's prayer in the grounds of appeal is only one. He wants a deduction under section 80V. Who is the creditor is a matter of details. It is open for the Tribunal to arrive at a different finding than what was submitted at the time of the hearing. 21. The above finding is also supported by the assessments of the firm and the partners. The interest paid by the assessee to the firm is the income of the firm, in the allocation of profits, however, 50 per cent of the profit gets allocated to the assessee. It would be seen, therefore, that although initially the assessee is debited to the full extent of the interest. In actual fact, the assessee is out of the pocket only to the extent of 50 per cent. The balance has come back to him by way of share of profit. Therefore, the real expenditure of the assessee is only 50 per cent of the interest debited. This also supports our finding that the borrowals are only from the co-partner and that could be only to the extent of the co-partner's interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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