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Commissioner of Income-tax Vs. Veeriah Reddiar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 30 of 1967
Judge
Reported in[1969]73ITR162(Ker)
ActsIncome Tax Act, 1922 - Sections 10(4)
AppellantCommissioner of Income-tax
RespondentVeeriah Reddiar
Appellant Advocate C.T. Peter, Adv.
Respondent Advocate K.V.R. Shenoi,; P.K. Kurien,; V. Desikan and;
Cases ReferredCape Brandy Syndicate v. Commissioners of Inland Revenue
Excerpt:
- - the appeal filed by the assessee before the appellate assistant commissioner was unsuccessful. after receipt of that report the appellate tribunal passed a final order, the operative portion of which runs as follows :the parties who accepted the hundials in question are the best persons to speak to the security they accepted. 367, 374, 375: the language of that provision is clear and according to well established canons of construction, it is not open to read into the enactment words which are not there or to disregard words which are actually to be found in it. it means that in taxation you have to look simply at what is clearly said. there is no presumption as to a tax ;you read nothing in ;you imply nothing, but you look fairly at what is said ;and at what is said clearly and..........during the relevant accounting period the total value of the goodspurchased and despatched by the bombay business to customers amounted to rs. 48,03,852. out of it a portion represented value of goods despatched to the assessee at alleppey. the bombay business received a commission altogether of rs. 25,37,496. it paid rs. 72,565 by way of interest. that was towards borrowings made mostly on hundis. the amount that was paid by way of interest was charged by the bombay business to its customers. out of the total amount of rs. 72,565 paid by it by way of interest, rs. 66,644 represented interest charged to the assessee on account of the borrowings made by s. veeriah reddiar, who was the proprietor of the bombay business for purchase of goods by the assessee. the assessee, in its return for.....
Judgment:

Narayana Pillai, J.

1. This is a reference under Section 66(2) of the Income-tax Act, 1922. The assessment year concerned is 1959-60 and the accounting year, the Malayalam year 1133 M.E. The question referred is:

' Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing interest payment of Rs. 66,644 by the assessee-firm to one of its partners, S. Veeriah Reddiar, in the assessment of the firm for the year 1959-60.

2. The assessee is a firm doing business in textile goods at Alleppey. One of the partners of the firm is S. Veeriah Reddiar. Previously the firm had business in Bombay also which was mainly for purchasing goods there for trade at Alleppey. The business at Bombay was found to be a losing concern. By an agreement entered into between the partners on July 15, 1957, the partnership was dissolved in respect of the business at Bombay and S. Veeriah Reddiar became the sole proprietor of that business. During the relevant accounting period the total value of the goodspurchased and despatched by the Bombay business to customers amounted to Rs. 48,03,852. Out of it a portion represented value of goods despatched to the assessee at Alleppey. The Bombay business received a commission altogether of Rs. 25,37,496. It paid Rs. 72,565 by way of interest. That was towards borrowings made mostly on hundis. The amount that was paid by way of interest was charged by the Bombay business to its customers. Out of the total amount of Rs. 72,565 paid by it by way of interest, Rs. 66,644 represented interest charged to the assessee on account of the borrowings made by S. Veeriah Reddiar, who was the proprietor of the Bombay business for purchase of goods by the assessee. The assessee, in its return for the relevant period, claimed a deduction of the amount of Rs. 66,644 on the ground that it represented interest paid by it to the Bombay business. The Income-tax Officer found that the claim was not admissible. The appeal filed by the assessee before the Appellate Assistant Commissioner was unsuccessful. He filed a further appeal before the Appellate Tribunal. The Appellate Tribunal sent back the case to the Income-tax Officer for fresh investigation. Thereafter, the Income-tax Officer sent a remand report to the effect that the business of the assessee was separate and distinct from the Bombay business and that the submission made before the Tribunal on behalf of the assessee had not been proved. After receipt of that report the Appellate Tribunal passed a final order, the operative portion of which runs as follows :

' The parties who accepted the hundials in question are the best persons to speak to the security they accepted. This must establish the assessee's case conclusively. If they looked to all the partners of the assessee-firm and not only Veeriah Reddiar for payment of their hundials, in our opinion, the assessee is entitled to the deduction claimed as interest paid by the assessee to the Bombay parties ultimately. The Income-tax Officer shall satisfy himself through affidavits to be filed by the assessee from the Bombay parties and allow the deduction.

10. We direct the Income-tax Officer to amend the assessment and those of the partners accordingly.

11. The appeal is allowed. '

3. The material part of Section 10(4)(b) of the Income-tax Act, 1922, relied upon by the department to show that payment of interest by a firm to one of the partners was not a permissible deduction, runs thus :

' Nothing in Clause (ix) or Clause (xv) of Sub-section (2) shall be deemed to authorise . . .--

(b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm ... '

4. Clause (xv) deals with expenditure (not in the nature of capital expenditure or personal expenses of the assessee) laid out or expendedwholly and exclusively for the purposes of such business, profession or vocation.

5. The learned counsel appearing for the assessee contended that payments made by the assessee by way of interest to S. Veeriah Reddiar were not payments made by him in his capacity as a partner of the assessee-firm but as the proprietor of the Bombay concern and so, Section 10(4)(b) was not attracted to the case. In overruling a similar contention based on that section, Rajamannar C. J. said in Goodsir & Co. v. Commissioner of Excess Profits Tax, [1948] 16 I.T.R. 367, 374, 375:

' The language of that provision is clear and according to well established canons of construction, it is not open to read into the enactment words which are not there or to disregard words which are actually to be found in it. Rowlatt J. observed in. Cape Brandy Syndicate v. Commissioners of Inland Revenue, [1921] 12 T.C. 358, 366. thus :

' Now of course it is said . . . that in a taxing Act clear words are necessary to tax the subject. But it is often endeavoured to give to that maxim a wide and fanciful construction. It does not mean that words are to be unduly restricted against the Crown or that there is to be any discrimination against the Crown in such Acts. It means this, I think; it means that in taxation you have to look simply at what is clearly said. There is no room for any intendment ; there is no equity about a tax; there is no presumption as to a tax ; you read nothing in ; you imply nothing, but you look fairly at what is said ; and at what is said clearly and that is the tax.'

Looking, then, fairly at what has been said, it is clear that there is no distinction made between payments by way of interest, commission, salary or remuneration made to a partner as a partner and made to him in a different character. There is nothing to indicate that some categories of interest, salary, commission or remuneration, though paid by a firm to a partner, were to fall outside the scope of that provision.'

6. We are in complete agreement with that interpretation of Section 10(4)(b).

7. It was then argued that the borrowings made in Bombay for whichRs. 66,644 was paid by way of interest were borrowings made for theassessee and not for the Bombay concern and that, therefore, the assesseewas entitled to the allowance claimed. The Bombay concern was an independent one, It had ceased to be a part of the assessee's business by July15, 1957. There is nothing to indicate that the assessee had either expresslyor impliedly authorised the Bombay concern to borrow money on behalf ofthe assessee. Therefore, it has to be taken that the borrowings made bythe Bombay concern were for its own sake and not for the assessee.

8. For the reasons mentioned above we answer the question that has been referred to us in the negative, that is, in favour of the department and against the assessee. We make no order as to costs. A copy of this judgment shall be sent to the Income-tax Appellate Tribunal.


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