Bombay High Court
The Commissioner Of Income-Tax, Bombay ... vs Hansa Dyeing And Printing Works, Bombay on 22 June, 1976
Equivalent citations: (1976)5CTR(BOM)482
Author: V.D. Tulzapurkar
Bench: V.D. Tulzapurkar
JUDGMENT Kantawala, C.J.
1. This Rule in this case deserves to be discharged. The short question arises upon true construction of section 40(b) of the Income-tax Act, 1961. Under this sub-section no deduction is permissible in case of a firm in respect of any payment of interest, salary, bonus, commissioner or remuneration made by the firm to its partner. The manager representing the H.U.F. was a partner and he in his personal capacity had advanced a loan. In respect of the capital contributed by the H.U.F. no interest was allowed, but in respect of the personal loan advanced by the manager in his individual capacity interest was allowed. At the time of the initial assessment of the firm no objection was taken to the payment of this interest and it was treated as a permissible deduction. However, the case was later on sought to be reopened and the Tribunal has set aside the order of rectification on the ground that this is into a proper case where the provisions of section 154 of the Act can be invoked because when two reasonable views are possible the power under that section cannot be invoked. In taking that view the Tribunal was right because if a Hindu Undivided Family through its manager is a partner in the firm then for the purposes of the Income-tax Act, the income received will be of the H.U.F. while if any co-parcener including the manager has advanced a personal loan that will be his personal income. Interest paid in respect of the personal loan cannot be treated as interest paid to the H.U.F. which is a partner through the manager and therefore it is doubtful whether section 40(b) can be made applicable to interest paid in respect of the amount advanced by the manager in his personal and individual capacity. Thus the Tribunal was right in taking the view that powers of rectification under section 154 cannot be exercised. Accordingly, the Rule is discharged with costs.