9911796707
TMI Blog1974 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... t account 2 Mohanlal C. Khatiwala Kerta of his HUF 377 2,851 Mohanalal, on his Individual Deposit account 3 Chimanlal C. Khatiwala as Karta of HUF 11,108 9,984 Chimanlal, on his individual deposit account. 4 Bharat H. Khatiwala as member of the HUF of Hiralal C. Khatiwala. 9,043 — . . . 20,893 14,151 . 2. The account year concerned are S. Y. 2025 (22nd Oct., 1968 to 9th Nov., 1969) and S.Y. 2026 (10th Nov., 1969 to 30th Oct., 1970) relevant to the asst. yrs. 1970-71 and 1971-72 respectively. There was an earlier partnership deed dt. 23rd April, 1964 between 10 partners of whom Shri Hiralal retired from 2nd April, 1969. Thereupon the remaining 9 partners reconstituted the firm in terms of the new partnership deed dt. 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Partnership shall be Rs. 2,40,000. And that as and when necessary the Parties hereto shall bring in additional capital required by the Partnership." No interest was paid on the partner's capital. 4. Cl. (6) of the Partnership Deed dt. 2nd April, 1969 provided for capital contribution as follows: "(6) That the parties of all the parts hereto except the parties of the Fourth and Seventh Parts hereto shall contribute Rs. 10,000 each towards the Fixed Capital of the Partnership. That, however, the parties of the Fourth and Seventh parts hereto shall contribute Rs. 80,000 each towards the Fixed Capital of the Partnership. That, therefore, the Fixed Capital of this Partnership shall be Rs. 2,30,000 and that as and when necessary, the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Salary Interest 1. Jyotindra (Individual) 34,383 13,050 395 2. Mohanlal (HUF) 30,624 13,050 377 3. Chimanlal (HUF) 30,624 13,050 — 4. Bharat (HUF) 19,346 5,000 9,045 . . . . 9,817 The ITO apportioned interest of Rs. 11,108 paid by the firm to Chimanlal in his individual deposit account against the other partner Champaklal C. Khatiwala, perhaps erroneously. Asst. yr. 1971-72 . . Profit Salary Interest 1. Jyotindra (Individual) 47,321 13,800 1,516 2. Mohanlal (HUF) 35,490 13,800 2,851 3. Chimanlal (HUF) 35,490 13,800 9,984 . . . . 14,351 7. The AAC agreed with the ITO and upheld the interest add-back under s. 40(b) of Rs. 20,923 for the asst. yr. 1970-71 and Rs. 14,351 for the asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity as Karta of the HUF. That was so because salary was payable by the firm for services rendered and the services had of necessity to be rendered by the partner Karta whether as representing the HUF or as an individual. The position in regard to interest payable by the firm on borrowed funds is, however, different, because these funds can flow from several distinct and identifiable sources available to the partner. In the present case, funds were advanced by the individual partners Jyotindra also on behalf of the HUF of which he was the Karta and by the Karta partner Mohanlal, Chimanlal and Bharat out of their own individual and personal resources and interest was paid by the firm on such deposit accounts. In regard to rendering services f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent and distinct capacities, other wise strange anomalies in taxation would arise. For example, the entire interest paid to "A" in the above case would be apportioned to him under s. 158 and would in terms of s. 67(1) constitute his share in the income of the firm and would become taxable in his hands even though such interest is really the income received by "A" in five different capacities taxable in the hands of five separate units. Sec. 67 would also not be of any help in such a case because it cannot be said that "A" would also be in conflict with the other provisions of the Act relating to taxation of income in different capacities as executors, trustees etc. While, therefore, regard to salary paid to a partner it may not make any d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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