1997 (3) TMI 10

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....6-77. The case of the assessee-firm was that Shanti Kumar Jain, Ashok Kumar Jain, Raj Kumar Jain and Niranjan were partners in the firm in their capacity as karta of the respective Hindu undivided family. They have advanced monies to the assessee-firm in their individual capacity. The assessee-firm paid interest to them on the investments made in their respective individual capacity. It is the further case of the assessee-firm that it has maintained two separate ledger accounts of the partners, one of individual as loan creditor and another of karta of Hindu undivided family as partners in the firm. The sources of the money, according to the assessee, are quite separate. The assessee-firm claimed that the interest paid to them shall not be ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....88] 174 ITR 346, the Rajasthan High Court has taken the view that the said Explanation is merely declaratory in nature and that, therefore, even for the assessment years prior to April 1, 1985, the position of law should be understood to be the same. In support of this proposition, the High Court relied upon the fact that ordinarily the purpose of an Explanation is to clarify that which is already enacted and not to introduce something new. The High Court opined that the Explanation was inserted by Parliament with a view to settle the controversy as to the meaning and effect of the said clause among the several High Courts and that the Explanation puts a seal of approval on the view taken by the majority of the High Courts. The High Court a....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....artnership is a certain relation between persons, the product of agreement to share the profits of a business. "Firm" is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law, a firm is a unit of assessment, by special provisions, but is not a full person which leads to the next step that since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners. So that any agreement for remuneration of a partner for taking part in the conduct of the business must be regarded as a portion of the profits being made over as a reward for the human capital brought in. Section 13 of t....