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2015 (3) TMI 1135 - ITAT MUMBAI

2015 (3) TMI 1135 - ITAT MUMBAI - TMI - Disallowance u/s 14A - interest payment to the partners on their capital balance - Held that:- It is pertinent to note that the profit of the partnership firm is distributed among the partners in the ratio of their profit sharing. The interest payment to the partners on their capital balance is not revenue neutral as the same is taxable in the hands of the partners. In a case where no interest is provided on the capital account of partners, the correspondi .....

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which is not on the borrowed fund but on the capital contributed by the partners - Decided partly in favour of assessee

Disallowance on account of foreign commission payment u/s 40(a)(i) for want of TDS - Held that:- The income from the offshore supplies is not taxable in the hands of the assessee under the regular provisions of Income tax Act, 1961. In such a situation there is no need to examine the provisions of DTAA for ascertaining whether there is a permanent establishment of t .....

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under:- The Ld. CIT(A) is not justified both on fact and in law in confirming the disallowance of ₹ 11,73,949/- by the Assessing Officer without considering the facts of assessee s case appreciating the submissions made/case laws sited. 2. The assessee is a partnership firm engaged in the business of manufacturing and trading of textile goods in the export market. During the course of assessment proceedings, the Assessing Officer noted that the assessee received substantial dividend incom .....

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hallenged the action of Assessing Officer before CIT(A) and submitted that the assessee has not borrowed any fund and, therefore, the disallowance of interest expenditure u/s 14A is not warranted. The interest shown in the P&L account is only the interest payable to the partners on the capital attributed by the partners and, therefore, the said expenditure cannot be contributed to the earning of dividend income. The CIT(A) has not accepted the contention of the assessee and confirmed the dis .....

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Investment Ltd (2012) 50 SOT 54 (Del) iv) Vishnu Anant Mahajan Vs. ACIT (Spl. Bench decision) v) CIT Vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) 5. He has also relied upon the Judgment of Hon'ble Supreme Court in the case of CIT Vs. R.M. Chidambaram Pillai 106 ITR 292 and submitted that the firm is not a legal persona and under Income Tax Law and not a full person, therefore, the salary paid to the partner is part of the profit of the firm taxable as such. Thus the Ld. Authorized Repr .....

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arning the income which is exempt from tax, consequently, the interest on capital of the partner is liable to be disallowed u/s 14A. 7. We have considered the rival submissions as well as relevant material on record. It is pertinent to note that the profit of the partnership firm is distributed among the partners in the ratio of their profit sharing. The interest payment to the partners on their capital balance is not revenue neutral as the same is taxable in the hands of the partners. In a case .....

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addition to the extent of disallowance u/s 14A on account of interest expenditure which is not on the borrowed fund but on the capital contributed by the partners. Accordingly, this ground of the assessee s appeal is partly allowed. 8. The revenue has raised various grounds in its appeal, however, the only issue arises from the grounds raised by the revenue is whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 49,31,888/- u/s .....

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, the said circular was withdrawn w.e.f 12.10.2009. The withdrawal of the circular is not retrospective, therefore, for the year under consideration, the assessee was not required to deduct the tax before the circular was withdrawn. The findings of CIT(A)on this issue are relevant in para 3.4 and 3.5 of the impugned order as under:- 3.4 The AO in para 6.15 of the assessment order has also stated that the Board's Circular NO.786 dated 7.02.2000 has been withdrawn by the Board w.e.f. 22.10.200 .....

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he assessment order that under delegated legislative powers conferred by the Parliament, the CBDT is given the power to' make subordinate legislations such as making of Rules, issuing of Circulars and Notifications etc. The operation of such subordinate legislation is always retrospective in nature. In this regard the learned AR of the appellant has relied upon the decision of Supreme Court in the case of Prohibition S: Excise Superintendent, AP vs. Toddy Tappers Cooperative Society, Maderap .....

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the circular NO.23 of 1969 No. 163 of 1975 and 786 of 2000 will be operative only from 22.10.2009 and not prior to that date". Thus the withdrawal of earlier circular w. e.f 22.10.2009 has no bearing in A. Y. 1998-99." 3.5 In view of the categorical findings given by the Hon.ble ITAT Mumbai 'L' Bench in the aforesaid decision coupled with the fact that no tax was deductible in the case of the appellant I direct the AO to delete the addition of ₹ 49,31,888/-. This ground .....

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national Ltd. (2013) 86 CCH 075 (Delhi HC) iii) Dy. CIT V. Rediff.com India Ltd. ITA No. 6133/Mum/2002 (Mumbai L Bench) 11. In case of DDIT (International Taxation), Mumbai Vs. Siemens Aktiengesellschaft (Supra), the Tribunal while considering an identical issue has held in para 5 to 7 as under:- 5. It is further noted that the Tribunal while taking the view in assessee's in assessment year 1997-98 drew support from Circular No.23 dated 23.7.1969 para 3 of which bas been extracted at page 16 .....

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he Tribunal bas placed reliance while deciding the case for assessment year 1997- 98 in assessee's own case hold good for the instant year as well. lt is axiomatic that a Circular in operation through the assessment year 1998·99 cannot be held to be in operational simply by reason of the filet that it has been withdrawn in the year 2009. The withdrawal of such Circulars will be effective only after the said date of 22nd October. 2009 by which these Circulars have been withdrawn 'w .....

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