1982 (2) TMI 48

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....72 to 5-6-73 and 6-6-73 to Diwali 1973, in terms of section 187 of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in disallowing the interest paid to the account of Gokulchand representing his HUF funds and Shantilal, Kantilal and Gajendrakumar, representing their individual funds, as creditors to the firm in terms of section 40(b) of the Income-tax Act, 1961, when the partners of the firm are in a different capacity ? " Assessee is a registered firm. Assessment year in question is 1974-75 for which the accounting year ended on Diwali 1973. The assessee filed two return, one relating to the period from Diwali 1972 to June 5, 1973, and the other from June 6, 1973 to Di....

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....tners including the two partners of the earlier firm. The earlier partnership having been constituted consisting of five partners, it could not be a case of change in the constitution of the firm as contemplated by s. 187(1) of the I.T. Act. It was a case of succession of one firm by another firm as provided under s. 188 of the Act. There are several decisions expressing conflicting views on this issue but this High Court in Ganesh Dal Mills v. CIT (M.C.C. No. 40 of 1977, decided on 30-9-80[1982] 136 ITR 762) has taken the view that in such cases where there is a dissolution of a firm and constitution of a new firm thereafter, it will be a case of succession and not of change in the constitution of a firm. Following the above decision we ho....

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....arguments, learned counsel for the assessee tried to differentiate the facts pertaining to the case of the partner, Gokulchand. We are constrained to reject this argument because this was never the case at any stage of the proceedings till the final order was passed by the Tribunal in appeal. The matter was raised only at the time when the order of reference was being finalised. Therefore, the case of Gokulchand cannot be considered on separate footing or on different facts because that does not arise out of the order of the Tribunal. As regards the application of s. 40(b) of the Act, it is clear that the assessee-firm paid interest to its partners and the same was not deductible under s. 40(b) of the Act. It really did not matter whethe....