TaxTMI 
TaxTMI 
2007 (7) TMI 295
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....character. It is at the instance of the Revenue that the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity, "the Tribunal") has referred the following question of law, which is stated to have emerged from its order dated March 11, 1992, passed in ITA No. 284/Asr./ 87, in respect of the assessment year 1983-84. The question of law referred reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the amount of salary and bonus paid by the firm to partners for services rendered by them on the ground of having technical qualification and expertise, though they represented their Hindu undivided family and section 40(b) of the Income-tax Act was not attracted....
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.... in the case of N. T. R. Estate v. CIT [1986] 157 ITR 285, wherein it has been held that the salary and interest paid by the firm to some of the partners is to individuals even if they had become partners in their capacity as kartas of Hindu undivided family. Therefore, the same could not be disallowed by applying the provisions of section 40(b) of the Act. The Tribunal has approved the reasoning adopted by the Commissioner of Income-tax (Appeals) while applying the ratio of the judgment in the case of N. T. R. Estate v. CIT [1986] 157 ITR 285 (AP). The order of the Commissioner of Income-tax (Appeals) is as under : ". . . I have given a careful consideration to the submissions made by learned counsel for the appellant and have also gone....
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.... abovementioned question of law for the opinion of this court. 6. No one has put in appearance on behalf of the assessee despite service. 7. We have heard learned counsel at a considerable length and are of the view that the controversy has been set at rest by the hon'ble Supreme Court in the case of Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825. The view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros. v. CIT [1988] 174 ITR 346, has been approved by accepting that Explanation 2 added to section 40(b) of the Act is declaratory in nature and the same is to apply to the cases like the one in hand concerning assessment years prior to April 1, 1985. Section 40(b) as it stood at the relevant time and Explanation 2....
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.... 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 pro-position, 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 also referred to the definition of "person" in clause (31) of section 2. It pointed out that the definition sho....
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....s is so, we see no reason to hold that this theory of different capacities is not valid or available for the period anterior to April 1, 1985. Accordingly, we hold that even for the period anterior to April 1, 1985, any interest paid to a partner, who is a partner representing his Hindu undivided family, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand and Bros' case [1988] 174 ITR 346 that Explanation 2, in the context of clause (b) of section 40, is declaratory in nature." 9. Once the character of an individual has been treated different then the Hindu undivided fam....