COMMISSIONER OF INCOME TAX vs ANANT RAM SHAMVER

ASHOK BHAM, J.

At the instance of the Revenue, following question of law has been referred to this Court by the Tribunal, Arnritsar, for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the finding of the AAC to the effect that interest payable to various members of the HUF after partial partition w.e.f. 31st March, 1979, which is not valid as per provisions of s. 171(9) of the IT Act is admissible deduction in computing the income of the assessee-firm ?"

Relevant facts, giving rise to the aforesaid question are :

Assessment year involved is 1980-81. Assessee had claimed a deduction of payment of interest amounting to Rs. 24,503, made to several creditors, who were coparceners of a joint Hindu family. The ITO considered such payments as payments made to the HUF on the analogy that the source of the sum contributed in the name of these creditors was the capital of the HUF, which had been partitioned among the members of the joint family. The ITO did not accept and recognise the partial partition made in the family as, in his opinion, it was hit by s. 171(9) of the IT Act, 1961 (hereinafter referred to as ''the Acf). Claim of the assessee was rejected and the sum of Rs. 24,503 was added to the income of the assessee under s. 40(b) of the Act. The ITO was of the view that the payment of interest to the creditors cum members of the joint family amounted to payment to the joint family itself which had been a partner and continued as such.

Aggrieved against the aforesaid order of the ITO, assessee filed an appeal before the AAC, who accepted the same and deleted the additions made by the ITO.

Revenue filed an appeal before the Tribunal against the order of the AAC. Tribunal, following its own decision in another case, dismissed the appeal and upheld the order of the AAC.

Thereafter, Revenue filed a petition under s. 256(1) of the Act, for making reference of the question of law, said to be arising from the order of the Tribunal, to this Court for its opinion. Tribunal, accordingly, referred the question of law, which has been reproduced in the earlier part of this judgment.

The question of law referred to us stands concluded by a Division Bench judgment of this Court in Commissioner of Income Tax Vs. Tej Cloth Weaving Factory, , in favour of the Revenue and against the assessee. On somewhat similar facts, it was held (reproduced from headnote) :

"That after the insertion of sub-s. (9) in s. 171 by the Finance (No. 2) Act, 1980, w.e.f. Ist April, 1980, partial partition of an HUF was not to be recognised and the provisions of the Act applied as if there was no partial partition. If the partition was ignored, the three Kartas continued to be partners of the assessee-firm and the contributions continued to be of the Kartas as partners and there was no question of capital borrowing by the assessee from the members of the erstwhile HUF and the question of payment of interest would not arise and s. 36(1)(iii) would not be attracted to the case of the assesseefirm. Even if interest had been paid to the coparceners of the three HUFs, in effect, it would be treated as if interest had been paid to the Kartas of HUF who were partners of the assessee-firm and payment of such interest had to be disallowed by virtue of s. 40(b) of the Act. Therefore, the Tribunal was not right in upholding the finding of the CIT(A) that in spite of partial partition effected on 31st March, 1979, which was not valid as per s. 171(9) of the Act, the interest paid was an admissible deduction in computing the income of the assessee-firm."

Following the binding precedent of this Court in Tel Cloth Weaving Factory''s case (supra), with which we fully concur, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee.

OPEN