COMMISSIONER OF INCOME TAX Vs. GOPALKRISHNA M SINGRE

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, at the instance of the Revenue, the following question of law has been referred by the Tribunal, Pune Bench, Pune to this Court for opinion :

(2.) THE assessees in this reference are (1) Vishnu M. Singre, (2) Gopalkrishna M. Singre and (3) Shrikrishna M. Shingre and all of them are assessed in the status of 'individual'. The assessment year involved is 1973 74, the corresponding previous year being the year ended on 5th Nov., 1972. All of them are partners in a registered firm, namely, M/s Bengal Coal Supplying Co. The said firm derives its income from sale and supply of coal. It also derives income from interest on the Central Government securities and deposits, including deposits with banking companies to which the Banking Regulation Act, 1949, applies. The total income of the firm for the asst. yr. 1973 74 was apportioned by the ITO under the heads (1) interest to partners, (2) interest on fixed deposits and (3) residue share of profits. In their assessments, the assessees claimed deduction under S. 80L of the IT Act, 1961 ("the Act") in respect of such share of profits from the said firm which represented "interest on Government securities and interest on deposits from banking companies". This claim of the assessees was rejected by the ITO on the ground that it is the firm which had earned income from interest on fixed deposits and securities and not the assessee individuals who were partners thereof. The nature of income in the hands of the partners, according to the ITO, changed its complexion and it partook the character of "share of profits from the firm". He, therefore, rejected the claim of the assessees for deduction under S. 80L of the Act in respect of their share of interest on fixed deposits and securities received from the firm.

(3.) MR . G.S. Jetly, learned counsel for the Revenue, contended before us that the assessees are not entitled to any deduction under S. 80L of the Act, because it is the firm which received interest on fixed deposits and not its partners. According to Mr. Jetly, what was received by the assessees was only a share of the income of the partnership firm. To put it differently, the submission of the learned counsel is that the character of the income in the hands of the firm underwent a change on its apportionment in the hands of the partners and lost the character of "interest on Government securities and fixed deposits". In support of this contention, reliance was placed on the decision of the Orissa High Court in CIT vs. Janardan Subudhi (1981) 24 CTR (Ori) 73 : (1981) 131 ITR 287 (Ori).