TaxTMI 
TaxTMI 
1996 (12) TMI 2
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.... Amounts not deductible.---Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',---... (b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm; Explanation 1.---Where interest is paid by a firm to any partner of the firm who has also paid interest to the firm, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the firm to the partner exceeds the payment of interest by the partner to the firm. Explanation 2.---Where an individual ....
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....lowing the assessee's claim for interest paid on the credit balance in the individual account of Sri Rajendra Kumar? " The assessee, Brij Mohan Das Laxman Das, is a registered partnership firm having three partners. One of them is Rajendra Kumar. He was a partner as the karta of and representing his Hindu undivided family. The partnership firm maintained two accounts in the name of Rajendra Kumar, a capital account and a deposit account. The share of profit of Rajendra Kumar was credited to the capital account, while the interest paid to him on the deposits made by him was credited to his deposit account. In other words, the deposits were said to have been made by Rajendra Kumar in his individual capacity and, accordingly, interest was p....
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....t paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of clause (b). It is, therefore, clear that with effect from April 1, 1985, the question of the nature involved herein would not arise. Where a person is a partner in a representative capacity, i.e., as representing a Hindu undivided family, any interest paid to him in his individual capacity will not be hit by clause (b). The only question is what is the position earlier to April 1, 1985---which is the case here. Prior to the introduction of the said Explanation, there was a conflict of opinion among the several High Courts in the country, the majority of the High Courts taking the view in favour of....
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....sons/entities for the purpose of the Income-tax Act. The High Court, therefore, concluded that since an individual and a Hindu undivided family are two distinct entities for the purpose of the Act, clause (b) of section 40 has no application where the interest is paid to the partner on deposits made by him with the firm in his individual capacity where such person is a partner not in his individual capacity but as representing a Hindu undivided family. Sri G. C. Sharma, learned counsel for the appellant-assessee, strongly relies upon this decision and commends it for our acceptance. Learned counsel points out that even before the enactment of the Taxation Laws (Amendment) Act, 1984 (which inserted Explanation 2 aforesaid), a majority of the....
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....of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for, a man cannot be his own employer ". The provisions in Chapters III and IV of the Partnership Act amply define and delineate the duties, obligations and rights of the partners vis-a-vis the firm. The question yet remains where an individual is a partner in one capacity, e.g., as a representative of another person, can he have no other capacity vis-a-vis the firm. To be more precise, does the above position of law preclude an individual, who is a partner representing a Hindu undivided family, from depositing his personal funds with the partnersh....