TMI Blog2001 (10) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... p firm which derives income from import and export of goods and merchandise. The partners of the assessee-firm had credit balances with the assessee-firm. As on 1-4-1989, the partners withdrew some money from the firm which was given to two firms which, in turn, advanced the same money to the assessee-firm. The complete particulars of the same are given by the assessee in this paper book as under :- I. Kantilal Manilal Co. Withdrawals by partners from their capital accounts on 1-4-1989 : Partners Rs. 1. Mr. Champaklal M. Shah 7,00,000 2. M/s Pankaj P. Shah (HUF) 9,00,000 3. Mr. Anil P. Shah 8,00,000 4. Mr. Vinubhai P. Shah 9,00,000 5. Mr. Pannalal M. Shah 8,00,000 II. Loan given to M/s. Emjey Enterprises (sister concern) of ₹ 33,00,000 on 1-4-1989 by the four partners. Loan given to M/s. Kantilal Co. Pvt. Ltd. (sister concern) of ₹ 8,00,000 on 1-4-1989 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re a colourable device for avoidance of tax. In support of this contention, he relied upon the following decisions : 1.CIT v. Nagpur Golden Transport Co. (1998) 233 ITR 389(Delhi). 2.ITO v. P.K. Industries (1983) 16 TTJ (Asr.) 154. 3.First ITO v. Sree Tirupathi Co. (1992) 40 ITD 456(Mad.). 4.Banyan and Berry v. CIT (1996) 222 ITR 831(Guj.). 5.Sutlej Cotton Mills Ltd. v. ACIT (sic) (1993) 199 ITR 164. 6.Kamal Kumar Saharia v. CIT (1995) 216 ITR 217(Gauhati). He accordingly submitted that the Assessing Officer was not justified in disallowing interest paid to M/s. Emjey Enterprises and M/s. Kantilal Manilal Co. (P.) Ltd. holding as interest part to the partners under section 40(b) of the Act. The same should be deleted. 3. The learned D.R., on the other hand, relied upon the orders of the authorities below. He stated that the facts of the case, i.e., the series of transactions entered into by the assessee, speak themselves that the only purpose was to reduce the profit by avoiding applicability of section 40(b) of the Income-tax Act. The money was always with the assessee-firm. The money did not move an inch. The transfer took place only by book entry. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above series of transactions. The money, which was with the assessee-firm due to credit in the accounts of the partners, remained with the assessee-firm. As on 1-4-1989, only the accounts of the partners were debited by credit to the accounts of EE and KM Co., but the money did not move an inch. On 30-3-1990, the assessee made payments to EE and KM Co. and on 30-3-1990 itself the assessee received cheques from partners of the similar amounts. Thus, even on this date also, though the money started from the assessee s hands, it reached the assessee s hands on the same day i.e., 30-3-1990. The assessee paid interest to EE and KM Co. and they paid interest to the partners of the assessee-firm. Thus, the money was utilised by the assessee. Interest was also paid by the assessee; but, by inserting the names of EE and KM Co., the interest appears to have been paid to partners by these concerns and not by the assessee-firm. By this process, the applicability of section 40(b) is conveniently avoided by the assessee. The learned counsel for the assessee made a marathon effort to justify that the transactions were bona fide genuine business transactions. However, when a questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the contract between the partners. He stated that by virtue of section 11, the partners had the right to utilise the amount lying in their credits in any manner they liked. We entirely agree with the ld. counsel that the partners have absolute right to deal with the money lying to their credit in the capital account because there is no specific requirement of keeping a minimum capital as per the Partnership Act. We also agree with him that the partners had the right to withdraw the money and utilise it as per their sweet will. But, the question is : had the partners withdrawn or utilised their money ? The partners have not withdrawn the money at all. Only a journal entry was passed so as to show the credit of the amount in the hands of other persons than the partners. 4.3 It was contended by the ld. counsel that the transactions had been accepted in the income-tax assessments of EE and KM Co. and, therefore, the revenue having accepted one part of the transactions, cannot reject the same in the case of the assessee-firm. We are not impressed with the argument of the ld. counsel. Assessment proceedings in the hands of those persons and the assessee are independent. The true ..... X X X X Extracts X X X X X X X X Extracts X X X X
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