9911796707
TMI Blog1991 (9) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee firm were also partners in the aforesaid two firms, which, it is common ground, were engaged in agriculture. 4. In the course of the assessment proceedings for the assessment year 1982-83 now before us, the ITO found, inter alia, that, in the books of account of the assessee, the accounts of the two aforesaid firms showed credit balance on which the assessee had paid interest to the said firms, the amount of interest paid by the assessee-firm to the aforesaid two firms respectively being Rs. 47,316 and Rs. 12,004. On the aforesaid facts the ITO concluded that interest paid by the assessee-firm to the said two firms must be disallowed proportionately. In this regard the following reasons weighed with the ITO :-- (i) No d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or profession',-- (a) (b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm. " The aforesaid provisions are clear and unambiguous. What are to be disallowed under that sub-section are the amounts paid by the firm to any of its partners as and by way of interest, salary, bonus, commission or remuneration. 8. What is the rationale behind the provisions of section 40(b) ? The answer to this question lies in the law relating to partnership. Unlike the Scottish law, which vests the firm with a personality of its own, the Indian and English laws do not recognise a firm as an entity apart from the persons constituting it. Under the said laws, the firm is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm, such services being the partners' contribution, in kind, to the firm. Consequently, the remuneration received by the partner from the firm is regarded as a particular mode of division of profits of the firm. In other words, to quote the Supreme Court, " any agreement for remuneration to partner for taking part in the conduct of the business must be regarded as portion of the profits being made over as a reward for the human capital brought in. Section 13 of the Partnership Act brings into focus this basis of partnership business. " 10. It is the aforesaid principle of law relating to partnership that has been incorporated in section 40(b). Therefore, that section cannot be invoked unless it is shown clearly that interest and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses Act could not be imported to hold that a firm was a person, and that consequently it can enter into a partnership with another firm or individuals. The same question was considered by the Supreme Court in the case of Dulichand Laxminarayan v. CIT [1956] 29 ITR 535 and the Supreme Court held that, even under the Indian Partnership Act, 1932, a firm is not regarded as an entity separate and distinct from the members composing it, and that this position in law is not in any way altered merely because both the English and Indian Laws have for some specific purposes relaxed their rigid notions and extended a limited personality to a firm. Interestingly, one of the specific purposes noticed by the Supreme Court related to Order XXXC.P.C., ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
