Skip to content


Commissioner of Income-tax Vs. Chandu Lal Surajpal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 174 of 1977
Judge
Reported in(1985)45CTR(All)90; [1986]157ITR346(All); [1985]20TAXMAN384(All)
ActsIncome Tax Act, 1961 - Sections 40
AppellantCommissioner of Income-tax
RespondentChandu Lal Surajpal
Appellant AdvocateBharatji Agarwal and ;M. Katju, Advs.
Respondent AdvocateR.S. Agarwal, Adv.
Excerpt:
- .....cases, the payment of interest by the firm to such a partner is as a partner no matter who really has the beneficial interest in such payments. section 40(b) of the act would, therefore, apply to the payment of interest to the two partners, who were partners in their capacity as karta of their respective hindu undivided families, even if they had deposited their individual money in the firm. the question of law referred for our opinion, namely :'whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the provision of section 40(b) did not apply in so far as interest paid on deposits standing in the names of j. p. bhartiya and g. l. bhartiya is concerned ?'is answered in the negative, in favour of the department and against the assessee. the.....
Judgment:

Ojha, J.

1. During the assessment year in question, namely, 1970-71, the assessee-respondcnt, which is a registered firm, had five partners inducing Sri J. P. Bhartiya and Sri G. L. Bhartiya. These two persons were partners in their representative capacity as karta of their respective Hindu individed families. During the said assessment year., the partnership had paid interest to the aforesaid two persons in the sum of Rs. 18,585 and Rs. 12,372, respectively. The assessee claimed deduction of these amounts which was disallowed by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer in this behalf. The Tribunal, however, on further appeal, took the view that the interest appeared to have been paid to the aforesaid two persons in their individual capacity and allowed the appeal and granted the deduction claimed by the respondent. The Commissioner of Income-tax made an application under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as 'the Act', for referring the following question of law to this court for its opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provision of Section 40(b) did not apply in so far as interest paid on deposits standing in the names of J. P. Bhartiya and G. L. Bhartiya is concerned ?'

2. This application was allowed by the Tribunal which drew up a statement of the case and has referred the aforesaid question to this court for its opinion.

3. Having heard the counsel for the parties, we are of the opinion that the aforesaid question of law deserves to be answered in favour of the Department and against the assessee in view of the decision of a Division Bench of this court in CIT v. London Machinery Co. : [1979]117ITR111(All) , It was held that when a person in his capacity as karta of a Hindu undivided family enters into a partnership with others, the karta is a partner only in a personal capacity. The firm can treat only the karta and not the other members of the Hindu undivided family as its partners. The capacity in which he receives the payment, namely, for and on behalf of the family or for his own benefit and interest, is immaterial. Payment to a person who is a partner is the only criterion for the purpose of Section 40(b) of the Income-tax Act, 1961, which prohibits in absolute terms any allowance in respect of any payment by way of interest, salary, bonus, commission or remuneration made by the firm to any of its partners and does not make any distinction in respect of the character or capacity in which the payment is made to the partner. If a partner makes deposits in a firm of monies belonging to his Hindu undivided family and also monies belonging to him individually, in fact and in law, the partner brings in the money. In both the cases, the payment of interest by the firm to such a partner is as a partner no matter who really has the beneficial interest in such payments. Section 40(b) of the Act would, therefore, apply to the payment of interest to the two partners, who were partners in their capacity as karta of their respective Hindu undivided families, even if they had deposited their individual money in the firm. The question of law referred for our opinion, namely :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provision of Section 40(b) did not apply in so far as interest paid on deposits standing in the names of J. P. Bhartiya and G. L. Bhartiya is concerned ?'

is answered in the negative, in favour of the Department and against the assessee. The Commissioner of Income-tax would be entitled to costs assessed at Rs. 200.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //