9911796707
TMI Blog2003 (5) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be prescribed by the competent authority for the purpose of section 40(b) of the Income-tax Act, 1961 from time to time. In the event of loss or inadequacy of profits partners may mutually decided not to charge any interest or charge interest at lower rate as may be mutually decided amongst them from time to time." 3. The Assessing Officer on scrutiny of accounts noted that a sum of Rs. 7 lakhs was credited to the accounts of the partners on account of re-valuation of building owned by the firm. In other words, value of the building was enhanced by Rs. 7lakhs on 1-41992 and above sum was divided and credited to the accounts of the partners as under:-- (i) Shri Sant Singh Rs. 2,80,000 (ii) Shri Surjit Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital of the partners because such a disallowance is not sanctioned by cause (iv) of section 40(b). This said clause reads as under:-- 'any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of eighteen per cent simple interest per annum;.." Therefore, as can be seen only that part of the interest can be disallowed which is specifically mentioned in the above clause. The appellant has paid interest @ 18% on the capital outstanding in the partners hands and this has been authorised by the partnership deed. Therefore, no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners was duly allowed without any objection from the Revenue. For the first time objection was raised by the Assessing Officer in assessment year 1996-97. He further argued that interest allowed to the partners was disclosed in their respective returns and duly assessed. In the above situation, there was no justification on the part of the Revenue to take up this issue for the first time in assessment year 1996-97. The ld. Counsel for the assessee also drew our attention to assessment made in assessment year 1993-94 and other years. 7. The ld. Counsel for the assessee further argued that as per section 14 of the Indian Partnership Act, the property of the firm is defined as under:-- 10. The matter ultimately travelled to the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of dissolution or retirement. It is not possible to predicate before hand what will be the position in terms of monetary value of a partner's share on that date. At the time when the partner transfers his personal asset to the partnership firm, there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither can the date of dissolution or retirement be envisaged nor can there by any ascertainment of liabilities and prior charges which may not have even arisen yet." Their Lordships further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of his share in the partnership. On dissolution of the firm, accounts are settled amongst the partners according to their respective shares in the partnership. The assets which heretofore belonged to the partners, will after dissolution of the firm stand allotted to the partners individually. There is no transfer or assignment of ownership in the assets." 12. It is clear from above that the firm has no independent subsistence apart from partners and assets of the firm are assets of its partners. The 'firm' name is given to the partnership for the sake of convenience. All the same, under the Income-tax Act, firm for certain purposes is treated as an entity different from its partners. It is separately assessed and when firm pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notional entries are as good as real. These are binding on partners and partnership. 13. In the light of what has been observed above, we hold that the assessee was fully justified in crediting share of appreciation of value of the building in respective accounts of the partners. The building belonged to the partners under the general law as they were the owners of all the assets that belonged to the firm. It is, therefore, not correct on the part of the Revenue to say that share of accretion was wrongly credited to the accounts of the partners. Likewise, capital contributed by the partners cannot mean what is initially and actually brought in by the partners. The accretion, increase, profits and gains in any shape and form accruing in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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