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TMI Blog2021 (2) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. The assessee is an individual. The assessee filed his Income tax return for the AY 2016-17 on 21.12.2016, declaring Total Income of Rs. 8,01,860/-. The assessee is a partner in the firm M/s Rama Hi-Power Tech and all income from the partnership firm including interest on capital, remuneration, commission, etc are includible as income under the head 'Profits & Gains from business or profession' u/s.28(vi) of the Income Tax Act, 1961(Act). As per clause 4 of the partnership deed dt. 17.11.2002 of M/s Rama Hi- Power Tech, all the partners are entitled to interest on capital to the extent of 12% p.a. for the capital invested in the firm. It is the plea of the assessee that the partners have agreed that they would claim interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim for set off of loss under the same head of income i.e., intra head adjustment which is permitted u/s.70 of the Act. 6. The Assessing Officer however held that no income has accrued to the assessee from the partnership business during the financial year 2015-16. The expenses do not have any nexus with the other source of income under the head PGBP i.e., vehicle hire, consultancy or commissioner expense. Hence, the interest expense was proposed to be disallowed u/s 37 of the Income tax Act as the expenses were 'not laid out wholly and exclusively for the purpose of business or profession'. The assessing officer also held that no interest was received from M/s Rama Hi-power Tech, the partnership business, in which the capital wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being made by the partnership firm. The necessary Income Tax Returns & Balance sheet of Partnership firm was also filed before the AO. However, since the funds were borrowed from external sources, interest was payable by the assessee to its unsecured lenders. The partner claimed the deduction which it was entitled u/s 36(1)(iii) and 37 with income earned from other sources of income under the same head i.e. Vehicle hire, Commission Income and Consultancy income. This resulted in a loss arising from one source under the head business which was set-off with another source of income under the head of PGBP in terms of section 70. 9. Interest, salary, bonus, commission or remuneration received or receivable from the firm by the partners shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appan (1969) 73 ITR 20 (Mad). Therefore absence of earning any interest income on capital from the firm is no bar to claim the interest paid on borrowings for the purpose of contributing capital to the firm by the assessee as deductible expenditure. In such an event there would be loss under the head"PGBP" subhead "interest, salary from the partnership firm" and the assessee is entitled to set off the said loss against other income under the same head "PGBP". We are also of the view that the reasoning of the CIT(A) that the interest expense would be expenditure incurred for the purpose of earning income from the partnership firm in the form of share income and therefore the expenditure would be not allowable in terms of Sec.14A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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