TMI Blog2007 (7) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. None appeared for the assessee. JUDGMENT The judgment of the court was delivered by M. M. Kumar J.- The short question which permeates this reference is whether section 40(b) of the Income-tax Act, 1961 (for brevity, "the Act"), is applicable to the amount of salary and bonus paid by the assessee-firm to its partners for their individual service as against their Hindu undivided family character. It is at the instance of the Revenue that the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity, "the Tribunal") has referred the following question of law, which is stated to have emerged from its order dated March 11, 1992, passed in ITA No. 284/Asr./ 87, in respect of the assessment year 1983-84. The que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus were claimed to have been paid. 3. The Revenue felt aggrieved by the order passed by the Commissioner of Income-tax (Appeals) and preferred an appeal before the Tribunal. The appeal was dismissed vide order dated March 11, 1992 (annexure C). 4. The view of the Tribunal is discernible from paragraph 3 of its order, which in turn has placed reliance on a judgment of the Andhra Pradesh High Court in the case of N. T. R. Estate v. CIT [1986] 157 ITR 285, wherein it has been held that the salary and interest paid by the firm to some of the partners is to individuals even if they had become partners in their capacity as kartas of Hindu undivided family. Therefore, the same could not be disallowed by applying the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 62,015 made by the Income-tax Officer under section 40(b) of the Income-tax Act deserves to be deleted." 5. However, the Revenue approached the Tribunal with an application under section 256(1) of the Act claiming that the two questions of law would require determination by this court and prayed for referring those questions. Accordingly, the Tribunal accepted the prayer of the Revenue and has referred the abovementioned question of law for the opinion of this court. 6. No one has put in appearance on behalf of the assessee despite service. 7. We have heard learned counsel at a considerable length and are of the view that the controversy has been set at rest by the hon'ble Supreme Court in the case of Brij Mohan Das Laxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner in a representative capacity and interest paid by the firm to the person so represented or by the person so represented to the firm, shall be taken into account for the purposes of this clause." 8. The view of their Lordships in Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825 (SC) is discernible from paragraphs 6, 7 and 8, which reads as under (pages 829 and 830) : ". . . Explanation is merely declaratory in nature and that, therefore, even for the assessment years prior to April 1, 1985, the position of law should be understood to be the same. In support of this pro-position, the High Court relied upon the fact that ordinarily the purpose of an Explanation is to clarify that which is already enacted and not to introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To be more precise, does the above position of law preclude an individual, who is a partner representing a Hindu undivided family, from depositing his personal funds with the partnership and receiving interest thereon? Explanation 2 says in clear terms that there is no such bar. This is the legislative recognition of the theory of different capacities an individual may hold-no doubt confined to clause (b) of section 40. Once this is so, we see no reason to hold that this theory of different capacities is not valid or available for the period anterior to April 1, 1985. Accordingly, we hold that even for the period anterior to April 1, 1985, any interest paid to a partner, who is a partner representing his Hindu undivided family, on the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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