TaxTMI 
TaxTMI 
2019 (7) TMI 938
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....ment. 2. The appellant/assessee, a partnership firm, had effected transfer of its selective assets and liabilities to a company named M/s Muthoot Fincorp Ltd., by virtue of an agreement executed on 01.04.2004. It is not in dispute that the assessee firm had not carried on any business with effect from 01.04.2004. But the assessee firm had receipts of amounts from its customers, to the tune of Rs. 17,50,361/- and Rs. 2,21,933/-, as gains out of the business conducted earlier, during the previous years corresponding to the assessment years 2005-06 and 2006-07. The assessee filed returns claiming deduction of expenses to the tune of Rs. 18 lakhs and Rs. 5 lakhs, in the respective years, which pertain to interest paid to its partners which we....
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....pugned herein the Tribunal had reversed the order of the first Appellate Authority, by holding that, the claim of the assessee for the deduction with respect to payment of interest made to the partners, cannot be allowed under Section 40(b) of the Act. Aggrieved by the said order, the assessee instituted the above appeals. 4. Finding of the tribunal is that, since the assessee has not carried on any business during the previous years of the assessment years concerned, there arises no question of computing the income (receipts) under the head of business income. It was observed that, even if the assessee earned any income after closure of the business, it cannot be said that the interest paid to the partners is an allowable deduction, unle....
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.... Adv. Nisha John appearing for the appellant and Sri P.K.Ravindranatha Menon, Senior Counsel for Government of India (Taxes) on behalf of the respondents. 7. Section 189 of the Act provides that, where any business carried on by a firm has been discontinued, the assessment shall be made on the total income of the firm as if no such discontinuance had taken place. It provides that, all the provisions of the Act including the provisions relating to levy of penalty or any other sum chargeable under any provisions of the Act shall apply, so far as may be, to such assessment. Therefore it is evident that, with respect to a firm which discontinued its business, the assessment need to be made on the total income of the firm in accordance with th....
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....s. It is further stipulated that, such sum received should be included in the total income of the firm as if it is the income received before such discontinuance. Therefore there cannot be any dispute that the income received during the relevant years is to be charged to tax in accordance with the provisions contained in Section 176(3A). 8. Question arises as to whether such income received is profit and gains derived out of the business, coming within the purview of Section 28 of the Act. The receipts in the cases at hand are derived by way of income out of the business activities carried on by the firm before its discontinuance. Therefore it has to be construed that the receipts are profits and gains arose out of the business activity o....
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....r tax as if such sum was received before the discontinuance of the business. So also, under Section 189 of the Act, with respect to the assessment of firm which discontinued business, it is provided that, the total income of the firm shall be assessed as if no such discontinuance had taken place. Therefore we are of the considered opinion that, either under Section 189 or under Section 176 (3A), there is no restriction provided against allowing the deductions. Hence, while assessing the tax leviable on the income received by the assessee firm during the years after its discontinuance of business under Section 176(3A), deductions are allowable as contemplated under Section 40(b) of the Act. Hence both the questions of law framed above, are a....