CHHOTALAL AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference at the instance of the assessee, a registered firm, and relates to the asst. yrs. 1970 71 and 1971 72, the corresponding accounting years being those ending on June 30, 1969, and March 25, 1970. One Shri C. S. Virani was a partner of the applicant firm and he joined the partnership representing the HUF of which he was the "Karta". For the two accounting years in question, Shri C. S. Virani maintained two accounts with the partnership one his own individual account and the other of the HUF which he represented as "Karta". The firm paid interest on advances made other than the capital by the HUF represented by Shri C. S. Virani and also advances made by Shri Virani from his own personal account. The interest so paid on individual funds for the asst. year 1970 71 was Rs. 1,30,594 and interest paid on account of the HUF was the sum of Rs. 36,482. These payments were disallowed by the ITO who relied on S. 40(b) of the IT Act, 1961, for adopting such a course. Similar interest paid during the asst. year 1971 72 was disallowed, that being a sum of Rs. 1,37,606 paid on Shri C. S. Virani's personal account and a sum of Rs. 1.3,929 paid on HUF account.

(2.) THE assessee took up the matter of assessments in appeal before the AAC but the claim in regard to disallowance of interest paid on account of the HUF was given up in appeal. The AAC rejected the claim of the assessee in regard to the disallowance of interest paid on the individual account held by Shri C. S. Virani and this was confirmed by the Tribunal on further appeal.

(3.) NOW , we may refer to the provisions of the IT Act which may have relevance in deciding the question in controversy before us. Secs. 30 to 39 of the IT Act, 1961 provide for various allowances and deductions to be made in computing the income chargeable under the head "Profits and gains of business or profession". Though generally these deductions are to be made for the purpose of determining the net income of any assessee, S. 40 envisages situations where some of the deductions are not to be made and some are to be made in a modified manner in the case of certain classes of assessees. Clause (a) deals with the case of any assessee, cl. (b) deals with the case of any firm, cl. (c) deals with the case of any company, and cl. (d) deals with the case of a banking company. We are concerned for the purpose of this case only with S. 40(b). That reads: