COMMISSIONER OF INCOME TAX BOMBAY Vs. SAVAILAL MANEKLAL

JUDGEMENT

(1.) BY this reference under section 256 (1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the revenue : "whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest and commission paid to Shri Deepak N. Shah as partner of the firm representing his H. U. F. , is not payment made to partner of the firm and consequently cannot be disallowed under section 40 (b) of the Income-tax Act, 1961?"

(2.) THE facts, which are material for the purpose of this reference are as under : in the assessee firm, there are two partners namely, H. U. Fs. of Narottamdas K. Shah and Smt. Jayalaxmi N. Shah and the H. U. Fs. of Deepak N. Shah. During the previous year relevant to the assessment year 1979-80, the assessee paid commission of Rs. 14,948/- and interest of Rs. 55,740/- to Shri Deepak N. Shah in his individual capacity. The said amount was credited in the individual account of Shri Deepak Shah. The assessee claimed before the Income-tax Officer that provisions of section 40 (b) of the Income-tax Act, 1961 ("act") are not applicable and, therefore, the claim regarding payment of interest and commission should be allowed.

(3.) THE Income-tax Officer did not accept the claim of the assessee. He observed that the interest or commission paid to a partner, in any capacity is to be disallowed under section 40 (b) to the Act. The prohibition contained in this clause is absolute and make no distinction between payment made to a partner as a partner and payment made to him in a different character i. e. in his personal capacity as a Karta of the Joint Hindu Family. In this view of the matter, the commission of Rs. 14,948/- and interest of Rs. 55,740/- paid to the partner in his individual capacity were disallowed and added in the income of the assessee.