Bhupendra Navnitlal and Co. vs Commissioner of Income Tax

M.B. Shah, J.—The Income Tax Appellate Tribunal has referred the following two question u/s 256(1) of the Income Tax Act, 1961 ("the Act" for short), for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in coming to the conclusion that all the primary facts were not disclosed even though the assessee submitted the agreement entered into with National Boarder Manufacturing Co.?

Whether, on the facts and in the circumstances of the case, and in view of the judicial decisions the payments made to Shri Gopaldas Premchand, proprietor of National Boarder Mfg. Co., which rendered services to the assessee-firm, could be considered as payments to partner and be added back u/s 40(b) of the Income Tax Act, 1961, in the assessee''s total income, where the said Gopaldas Premchand was partner as karta of the Hindu undivided family?"

It should be noted that question No. 2 is covered by the Full Bench decision of this court in the case of Chhotalal and Co. Vs. Commissioner of Income Tax, Gujarat, . In that case, the court has held that in computing the business profits of the assessee-firm, the interest paid to an individual on monies advanced by him from his individual funds could not be disallowed on the ground that he was a partner of the assessee-firm as karta of the Hindu undivided family. The court observed that it goes without saying that when the assessee represents a Hindu undivided family, the interest paid to the Hindu undivided family has to be disallowed and not any interest paid to the assessee his account for the advance made by him personally. u/s 40(b) of the Act, it is only the interest paid to the partner which is not allowed to be deducted. Hence, question No. 2 is required to be answered in the negative, i.e., in favour of the assessee and against the Revenue.

Regarding question No. 1, in view of the aforesaid answer to question No. 2, it is not required to be replied and hence learned counsel for the assessee does not press for our opinion at this stage. Hence, question No. 1 is left unanswered.

In the result, the reference stands disposed of accordingly, with no order as to costs.