TMI Blog2010 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for the purpose of its business is to be considered u/s 32 - The assessee company has earned either in the form of share of profit or interest which is a business income of the assessee has to be computed after allowing deduction of expenditure permissible u/s 30 to 43D Section 14A stipulates for disallowance of expenditure against the exempt income - Assessee’s claim for insurance premium in respect of this building cannot also be allowed against interest income - Only interest expenditure incurred on the amount borrowed for the purpose of contributing funds in the form of capital in partnership firm can be allowed against the interest income received from partnership firm on the credit balance of capital - Appeal is dismissed in favour of Revenue - ITA 955/2010 - - - Dated:- 1-11-2010 - A.K. SIKRI , SURESH KAIT , JJ. Appellant represented by :Dr. S. Narayan,Mr. Rajiv K. Garg,Mr. Ashish Garg, Respondent represented by:Ms. Rashmi Chopra,Mr. Chandarmani Bharadwaj, A.K. SIKRI, J. 1. This appeal was admitted on the following substantial questions of law: 1.) Whether the depreciation claimed on the factory building owned by the assessee but used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer (AO) rejected the claim of depreciation on the plea that the factory building was not used by the assessee for the purpose of its own business, but was used by the partnership firm. The claim with regard to the insurance charges was, however, allowed by the AO. In appeal, CITA (A) upheld the action of the AO insofar as it declined the claim of depreciation. He further opined that no expenditure was allowable against the exempt income. Therefore, the claim of insurance charges, which was allowed by the AO was also reversed by the CIT (A) and added to the income of the assessee. 5. The assessee assailed the order of the CIT (A) unsuccessfully inasmuch as the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal ) has dismissed the appeal of the assessee vide its impugned judgment dated 24.12.2009. 4. It is in this backdrop that the question has arisen as to whether the factory building which is owned by a partner and is allowed to be used by the partnership firm would be treated as the premises used by the partner himself. Dr. S. Narayan, learned Senior counsel, who appeared for the assessee submitted that the main submission of the appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 At the instance of the assessee the following question has been referred: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to deduction on account of depreciation on assets owned by him and used for the profession of the firm of which he was a member ?" 2. The depreciation is allowable under Section 32 of the Income-tax Act in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession. On the finding of the Income-tax Officer, the assessee is the owner of the assets of the clinic and the nursing home. The only dispute was whether these assets were used for the purpose of the business or the profession of the assessee. This court has held in M. CT. Muthiah v. Commissioner of Income-tax 1974]97ITR516(Mad) following the decision in Commissioner of Income-tax v. Ramniklal Kothari, [1969]74ITR57(SC) that in the case of a partnership the business is not carried on by the partnership as such, but the business shall be deemed to be the business of the partners If that is so, certainly the assessee in this case had used the assets f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in the Act of 1961 which either expressly or impliedly precludes the application of Sections 30 - 37 to the case of a partner's share in the income from the firm. It is true, Section 67 refers to the method of computing a partner's share and Section 67(3) provides for deduction of interest paid by a partner on capital. The section, however, does not provide that any other deduction is not permissible. We do not find anything in the Act which will also imply that deductions under Sections 30 - 37 are not permissible in, the case of a partner's share in the income of the firm. 6. On the other hand, a perusal of the legislative history of this section leads to a contrary conclusion. In the twelfth report of the Law Commission of India, which deals with revision of the Indian Income-tax Act of 1922, the, clause corresponding to Section 67(3) was Clause 69(3) which was as follows: " Any interest paid by a partner on capital borrowed for the purposes of investment as his capital in the firm shall, in computing his income charge--able under the head ' Profits and gains of business, profession or vocation' in respect of his share in the income of the firm, be deducted from the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions of Section 14A of the Act. 9. She further submitted that though the Tribunal has not discussed the cases cited by the appellant, there was a proper and complete discussion in this behalf by the CIT (A), who held that in view of Section 10(2A) of the Act, such decisions were not applicable. We hereby quote from the order of the CIT (A) as that forms the argument of Ms. Rashmi Chopra, learned counsel for the Revenue: "3.5 As mentioned above the appellant has earned interest of ₹ 2,52,000 from the partnership firm on the cash amount lying to its credit with the partnership firm. The appellant has claimed the deduction towards depreciation on this factory building in the P L A/c wherein interest income u/s 28(v) is credited and offered for taxation. The computation of income under the head profit and gains of business or profession‟ is made in accordance with the provisions of section 29. The said section 29 provides that it is done in accordance with provision of section 30 to 43D. The depreciation is covered by section 32 and therefore, it is to be considered if the depreciation on the factory building which is claimed by the appellant has been with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14A. On this account also, the appellant cannot be permitted to claim depreciation. 3.7.1 The case laws on which the appellant has relied are not applicable to the facts and the circumstances of the case. The provisions for taxability of the partnership firms were materially changed by the Finance Act, 1992 w.e.f 1.4.1993. The provisions of section 10(2A) and 28(v) were introduced simultaneously by the Finance Act, 1992. All the case laws of which the appellant has relied are for the cases/matters pertaining to the period prior to 1.4.1992 and therefore, the ratio laid down by these judgments is not applicable now. Thus, no weightage can be accorded to the ratio of these decisions in the present regimen. 3.7.2 Without prejudice to the above, the decision relied upon by the appellant in the case of Ramni Lal Kothari (supra) does not support the case of the appellant. The facts of the case were that the assessee was a partner in four firms. The issue was if he was entitled to deduct from his share of the profits from the firms amounts paid as salary and bonus to staff, expenses for maintenance and depreciation of motor cars and travelling expenses expended by him in earning the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 32 which stipulates that asset should be owned by the assessee and it should have been used for the purpose of business of the assessee. First condition with regard to ownership of factory building is established. However, uncontroverted fact is that this factory building was not used by the assessee company but by the partnership firm for the purpose of its business. Since the use of building was not by the assessee for the purpose of its business, we do not find any infirmity in the orders of lower authorities for declining the claim of depreciation in the hands of the assessee company in respect of factory building which was not put to use by the assessee but by the partnership firm to whom same was contributed as per the terms of partnership deed. Assessee s claim for insurance premium in respect of this building cannot also be allowed against interest income. Only interest expenditure incurred on the amount borrowed for the purpose of contributing funds in the form of capital in partnership firm can be allowed against the interest income received from partnership firm on the credit balance of capital. Because by payment of insurance premium on building own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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