BASANTLAL GUPTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) -

(2.) THE assessee is a partner in General Swadeshis, a firm registered under the Income-tax Act. THE previous year of the assessee ended on the 12th November, 1955. In his assessment for the assessment year 1956-57, he claimed as a permissible deduction a sum of Rs. 2,000 paid as salary to his nephew, V. P. Gupta, for services rendered in connection with the assessees interest in the affairs of the firm of General Swadeshis. It may be noticed that this remuneration of salary paid to Gupta was not salary paid by the firm. What was sought by the assessee was a deduction of this amount from his share income in that firm. THE Income-tax Officer disallowed the claim for the reason that there was no evidence to show that this expenditure was incurred in order to earn the share income and further that when once the share income of the partner had been ascertained under the provisions of the Act, section 16(1)(b) of the Act prohibited any deduction therefrom. On appeal, the Appellate Assistant Commissioner also rejected the claim of the assessee, agreeing with the Income-tax Officer that as the assessees share of the income had been computed, no further deduction was permissible therefrom. THE contentions of the assessee were pressed before the Tribunal in a further appeal. THE Tribunal examined certain decisions purporting to bear upon the point and finally concluded that in so far as those decisions dealt with the matter, they dealt with only deductions permissible in respect of the firms assessment. THE Tribunal observed that while interest paid upon capital borrowed by the assessee for investment in the firm was permissible, no other item of expenditure was allowable out of the share income.

(3.) IN that particular case, however, it was found on the facts that certain amounts borrowed by the assessee, interest upon which he had to pay, were not borrowed in order to enable the assessee to earn the profits and that the interest deductions were not justifiable deductions.