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TMI Blog1974 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... HUF of which Jyotindra Was Karta on HUF's Deposit account 2 Mohanlal C. Khatiwala Kerta of his HUF 377 2,851 Mohanalal, on his Individual Deposit account 3 Chimanlal C. Khatiwala as Karta of HUF 11,108 9,984 Chimanlal, on his individual deposit account. 4 Bharat H. Khatiwala as member of the HUF of Hiralal C. Khatiwala. 9,043 — . . . 20,893 14,151 . 2. The account year concerned are S. Y. 2025 (22nd Oct., 1968 to 9th Nov., 1969) and S.Y. 2026 (10th Nov., 1969 to 30th Oct., 1970) relevant to the asst. yrs. 1970-71 and 1971-72 respectively. There was an earlier partnership deed dt. 23rd April, 1964 between 10 partners of who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided for capital contribution as follows: "(6) That the parties of all the parts hereto excepting the parties of the forth and fifth party hereto shall contribute Rs. 10,000 each towards the Fixed Capital of the Partnership, whereas the parties of the First and Fifth Parts hereto shall contribute Rs. 80,000 each towards the Fixed Capital of the partnership. That, therefore, the Fixed Capital of this Partnership shall be Rs. 2,40,000. And that as and when necessary the Parties hereto shall bring in additional capital required by the Partnership." No interest was paid on the partner's capital. 4. Cl. (6) of the Partnership Deed dt. 2nd April, 1969 provided for capital contribution as follows: "(6) That the parties of all the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing the business income of the firm in terms of s. 40(B) of the Act. The ITO accordingly did not deduct interest amount of Rs. 20,923 for the asst. yr. 1970-71 and Rs. 14,351 for the asst. yr. 1971-72 in computing the business income of the assessee firm. Thereupon the ITO apportioned under s. 158 the income, assessed on the firm between the above partners under: Asst. yr. 1970-71 . . Profits Salary Interest 1. Jyotindra (Individual) 34,383 13,050 395 2. Mohanlal (HUF) 30,624 13,050 377 3. Chimanlal (HUF) 30,624 13,050 — 4. Bharat (HUF) 19,346 5,000 9,045 . . . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dar Firm vs. CIT (1965) 58 ITR 312 (Mad) and (1971) 81 ITR 624 (Del) which decisions related to payments of salary to partners. 10. We are of the view that A.S.K. Rathnaswamy Nadar Firm vs. CIT (1965) 58 ITR 312 (Mad) and Pannalal Gridharilal vs. CIT (1971) 81 ITR 624 (Del) do not clinch the issue arising in this case. In the above cases, the question was whether salary paid by a firm to the partner-Karta representing the HUF was allowable deduction in the assessment of the firm or not, and it was held that the payment of salary by the firm to the partner of the firm was not an allowable deduction, whether the partner received the salary in his individual capacity or in his capacity as Karta of the HUF. That was so because salary was pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) also invests in the same partnership certain funds as Executor of the estate of a deceased person pending distribution of the estate to the beneficiaries, could it be intended that under s. 40(b) all the five categories of interest payment by the firm to "A" should be disallowed in computing the income of the firm merely because "A" is a partner in the firm representing his large HUF. We do not think so. In our opinion in such a case, only the first category of interest paid by the firm to the larger HUF whom "A" represents in the firm as partner could be disallowed under s. 40 (b) and not other four categories of interest paid by the firm to "A" on funds invested by him in different and distinct capacities, other wise strange anomalie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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