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TMI Blog1986 (9) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment year 1979-80, it returned an income of Rs. 27,870. The assessee itself added back the interest amounts debited to the three partners which are as follows : Rs. 1. Shantilal 4,417 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the income of the firm. This omission was subsequently noticed and a notice under section 154 of the Act dated 6-6-1983 was issued to the assessee-firm and it was asked to show cause as to why the mistake cannot be rectified. The assessee filed objections dated 24-6-1983. It is stated in those objections as follows : Shri Shantilal was carrying on separate proprietary business under the name and style of Varadaji Shantilal. In his capacity as proprietor of the said concern he had advanced a sum of Rs. 1,50,000 to the assessee-firm on which he was paid interest of Rs. 18,043 in the relevant accounting year. The said interest payment was received by him not in the capacity of a partner of Sukhraj Shantilal, a company, but in the capacity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar assessment dated 4-11-1982 completed under section 143(3) of the Act by the ITO. 4. As regards 1979-80 two contentions were raised. Firstly, it was contended that the disallowance under section 40(b) is proper or not in the facts and circumstances of the case is not free from difficulty and it cannot be said that the original assessment order under section 143(1) contains an obvious mistake. It is contended that the mistake, if any, in the said order can be found out only from a long drawn process of reasoning on a point on which conceivably there can be two views. There are a catena of decisions stating that when such is the situation the order of rectification cannot be valid and on that simple ground the addition made for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital investment and other investment made by a partner. The AAC held that though there are different types of investments as far as disallowance of interest under section 40(b) is concerned, the Act does not make any difference between the different investments made by the partner. It was also argued that under section 28 of the Act all statutory allowances under sections 36 and 40 of the Act should be allowed. The AAC brushed aside this argument by simply quoting the wording of section 40 where it starts with a non obstante clause 'Notwithstanding anything to the contrary in sections 30 to 39'. Ultimately he had dismissed the appeals filed by the assessee. Hence the second appeals. 5. We have heard Shri M. Nageswara Rao, the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In K. Krishnaiah Chetty & Sons' case the capital which stood credited to the individual accounts of the partners was transferred to the accounts of their respective HUFs and the interest paid thereon by the partnership firm was also credited to the accounts of the respective HUFs. Further, in that case, the Tribunal found that partners were not required to contribute any capital. It is also to be seen that in that case the accounts of the respective HUFs were shown as capital of the partners in the previous year. Even then it was held that it would not be a ground for ignoring the entries in the accounts of the relevant assessment year and held that since interest payment was made only to the HUF and not to the individuals section 40(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by way of interest, commission, salary or remuneration made to a partner as a partner and made to him in a different character. There is nothing to indicate that some categories of interest, salary, commission or remuneration, though paid by a firm to a partner, were to fall outside the scope of that provision. We are in complete agreement with that interpretation of section 10(4)(b)." Therefore, simply because the interest paid is towards borrowing made from a proprietary concern of a partner does not make the borrowing one which is not made from a partner and the interest paid on such borrowings is not in any way distinguished from the interest paid on the moneys borrowed from the partners. 7. Another category which can be excluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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