TaxTMI 
TaxTMI 
2005 (8) TMI 62
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.... "Whether, on the facts and in the circumstances of the case, the Tribunal was wrong in holding that the interest charged by the firm, M/s. Eves Picture House, on the debit balance of the assessee-partner in his capital account was allowable as expenditure incurred to earn his share of profit under section 67(3) from the firm?" Whereas in Income-tax Reference No. 82 of 1997, relating to the assessment years 1984-85 and 1985-86, the Tribunal has referred the following question of law under section 256(1) of the Act, for opinion to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was wrong in law in holding that the interest charged by the two firms, M/s. Eves Picture House and M/s. Apsara Cinema, o....
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....g aside the assessment directed the assessing authority to disallow the interest. In the case of Anil Prasad and Sons in further appeal preferred by the assessee, the disallowance was deleted by the Commissioner of Income-tax (Appeals). The Revenue as also Sri Ajit Prasad feeling aggrieved, preferred separate appeals before the Tribunal. The Tribunal has set aside the order passed by the Commissioner of Income-tax under section 263 of the Act and has held that the interest was an allowable deduction. The order of the Commissioner of Income-tax (Appeals) in the case of Anil Prasad and Sons has, however, been confirmed. We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue, and Sri S.P. Kesarwani, learned counsel appeari....
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....); (iii) CIT v. Jabarmal Dugar [1972] 84 ITR 158 (Raj); (iv) CIT v. Ganpat Rai Jaggi and Co. [1972] 86 ITR 363 (Delhi); (v) CIT v. Smt. P. Janaki Bai [1973] 87 ITR 645 (AP); and (vi) CIT v. Smt. Shanti Devi Jalan [1983] 139 ITR 152 (Cal). Having heard learned counsel for the parties, we find that under the terms of the partnership deed of both the firms the partners were to pay interest at the specified rate to the firms on their debit balances. The question is as to whether under section 67(3) of the Act the interest paid by them is an allowable expenditure or not. Under the scheme of the Act interest incurred is allowed as a deduction while computing the income under the following provisions: Under section 24 of the A....
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....eable to tax under the Act. No doubt, it is true as held by the apex court in Garden Silk Weaving Factory [1991] 189 ITR 512 that the Act still recognises the principle that a firm is only a compendious name for its partners and that the business carried on by the firm is also a business carried on by each of the partners too but that will not make the interest paid by the respondent-assessee to the firm as interest paid by the partner for carrying on the business of the firm for the simple reason that in the present case the respondents-asses-sees have borrowed money from the firm for their personal use and not for the purpose of business of the firm. In the case of Ramniklal Kothari [1969] 74 ITR 57 the apex court has held that the ....
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....pat Rai Jaggi and Co. [1972] 86 ITR 363 the Delhi High Court has held if a deduction is admissible in respect of a partner's share in the income of the firm under section 37 of the Act, it would have to be allowed even though it may not fall within the ambit of section 67(3) of the Act. There is nothing in section 67(3) of the Act to indicate that that provision is exhaustive and that deductions other than those mentioned therein cannot be allowed to a partner. In the case of Smt. P. Janaki Bai [1973] 87 ITR 645 (AP) the assessee was the owner of a building and a partner in the firm running hotel business in the said building. The assessee claimed deduction of depreciation on the premises in which the hotel was being run and also a deduc....
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....rtner of a firm is allowable as a deductible expense. But it is not comprehensive in the sense that it cannot be said that no other kind of interest can be deductible. If such interest complies with the requirements of the other provisions of the Act, which allow a deduction, there is no reason why such deduction should not be allowed merely because of the provisions of section 67(3) of the Act. Where the debit balance is made up of the personal drawings of the partner and also the loss of the firm, interest paid to the firm on the portion of the debit balance in the capital account of the partner which is attributable to the partner's share in the loss of the firm is allowable as a deduction in assessing the partner. In the case of S. G....