COMMISSIONER OF INCOME TAX Vs. JAIN CONSTRUCTION COMPANY

JUDGEMENT

(1.) ALL these applications under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act of 1961"), which pertain to the assessment year 1993-94, have been filed at the instance of the Revenue seeking mandamus to the Tribunal for drawing up a statement of case and to refer the different questions formulated in each reference application. Though the questions have been differently worded in each reference application it is agreed by learned counsel for the Revenue as well as for the respondent-assessee that the following common questions are involved in this group of applications :

(2.) IN order to better appreciate the controversy, the facts of one of the reference applications, i.e., D. B. INcome-tax Reference Application No. 12 of 1998 (CIT v. Jain Construction Co.) are stated in brief.

(3.) IT seems that it imposed an absolute embargo against deductions in respect of any of the payments made by the firm, of the nature enumerated, to any partner of the firm. Explanation 2 clarified that the interest paid by the firm to an individual, who is a partner in a firm in a representative capacity, shall not be taken into account for the purposes of the said Clause. IT indicated that it covered all the payments of the nature described to a partner of the firm by the firm and did not cover other payments made to such partners. The provision also did not provide for any category of salary, remuneration, etc., though paid by a firm to a person who is a partner, falling outside the scope of the said provision. There was nothing to indicate splitting of capacities of a partner making distinction between a partner obliged to work and one not obliged to work under the terms of a contract or provisions of law. IT appears that the state of law on the subject was still not satisfactory, thus Section 40(b) has again been substituted by the Finance Act of 1992, which reads as follows :