Commissioner of Income Tax vs Karuppaswami Mooppanar

Beasley, C.J.—The question referred is:--

When in a firm constituted by three partners, two partners retire in the year of assessment after receiving from the sole surviving partner, their

capital together with interest till the date of dissolution, is not the sole surviving partner who succeeds to the business of the firm entitled to deduct

the interest so paid by him to his ex-partners u/s 10 (2) (iii) read with Section 26 (2) of the Income Tax Act.

The facts of the case are sufficiently stated in the order of reference and the petitioner has been unable to produce any authority in support of his

contention that he is entitled as successor to the business to treat the capital of his former partners as borrowed capital and to a deduction in

respect of the interest paid on it. That is not so. The plain reading of the sub-section is, in my opinion, that the predecessor''s capital becomes the

successor''s capital and that for all purposes the succeeding partner is to be regarded as the former firm. I agree with the reasons given by the

Income Tax Commissioner for taking the view opposed to that put forward by the petitioner. The answer to the question referred, therefore, must

be that the surviving partner who succeeded to the business is not entitled to deduct the interest so paid by him to his ex-partners u/s 10 (2) (iii)

read with Section 26 (2) of the Act. The Income Tax Commissioner will get costs Rs. 250.

Sir Vepa Ramesam, J

I agree.

Sundaram Chetty, J.

I agree.