2022 (6) TMI 1280

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....derived income from house property and interest. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee was a partner in M/s. Pipada Motors, a partnership firm, from which remuneration of Rs.9,98,358/- was received and to which interest of Rs.20,94,755/- was paid on debit balance of the capital account with the resultant net minus income from the firm at Rs.10,96,397/-. Such negative income was adjusted against income from house property etc. The assessee could not place necessary documents before the AO, which led to the passing of the assessment order u/s.144 of the Income-tax Act, 1961 (hereinafter also called `the Act'), in which deduction of interest of Rs.20,94,755/- was denied. The matter w....

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....nclusion that interest paid to the firm on excess withdrawals should also be automatically allowed as deduction under the same section by treating it as the negative interest income. One needs to look at the relevant provision for taxing an income or allowing a deduction. Section 28(v) of the Act governs only the taxability of salary and interest income from firm. Au contraire, the deductibility of interest is managed by section 36(1)(iii) of the Act, which is a special provision. I am reminded of the legal maxim generalia specialibus non derogant, which means that special provision overrides general provisions. Once there is a special provision dealing with the deductibility of interest expenditure in terms of section 36(1)(iii), it is imp....

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....s failing in this theoretical case. 7. The assessee made out a case of the deduction before the ld. CIT(A) on the raison d'etre that the amount withdrawn from the firm was utilized for purchasing share in some running Hotel as per the Purchase Agreement dated 28-06-2013, which was a business purpose. The ld. CIT(A) relied on the proviso to section 36(1)(iii) of the Act and denied the deduction by observing that no income from the hotel was shown by the assessee for the year. 8. Proviso to section 36(1)(iii) stipulates that the amount of interest paid in respect of capital borrowed for acquisition of an asset "for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the as....