COMMISSIONER OF INCOME TAX V. M/S.BHOJRAJ SURENDRAPRASAD

ITR/28/1991

AI Insights

The case involves the Commissioner of Income Tax versus M/s. Bhojraj Surendrapal, where the core issue was the deductibility of interest paid to a Hindu Undivided Family (H.U.F.) account by a partnership firm under section 40(b) of the Income Tax Act, 1961. Initially, the interest was allowed as a deduction by the CIT(Appeals) following a decision by the Gujarat High Court in Sajjanraj Divanchand. However, this decision was later overturned by a Full Bench of the Gujarat High Court in C. Chhotalal & Co., and further by the Supreme Court in several cases, which clarified that interest paid to a person in any capacity other than that of a partner is not covered under section 40B. The Tribunal's earlier decision, which upheld the CIT(Appeals), was thus found to be in error.

• Counselvise Citation: [2001] 140 COUNSELVISE.COM (IT) 745073 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 20-09-2001
• Assessment Year: misc
• Other Referred Cases: C.Chhotalal & Co.(150 I.T.R.276), Sajjanraj Divanchand, 125 ITR 654, Brij Mohan Das Laxman Das vs. C.I.T., 223 ITR 825, Suwalal Anandilal Jain vs. C.I.T., 224 ITR 753, C.I.T. vs. Kanji Shivji, 242 ITR 124
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NOTICE SERVED
• Assessee Lawyers: B B NAYAK; MANISH BHATT
• Keywords: Assessment Year 1981-82; Income Tax; Interest deduction; Partnership firm; H.U.F. Account
• Section: 40(b); 256(2)

Judgement Text

" IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 28 of 1991 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH Sd/- and Hon'ble MR.JUSTICE D.A.MEHTA Sd/- ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus M/S.BHOJRAJ SURENDRAPAL -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 28 of 1991 MR BB NAYAK FOR MR MANISH R BHATT for Applicant. NOTICE SERVED for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE D.A.MEHTA Date of decision: 20/09/2001 ORAL JUDGEMENT (Per : MR.JUSTICE D.A.MEHTA) The Income Tax Appeallate Tribunal, Ahmedabad Bench \"B\" has referred the following two questions under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the opinion of this Court: 1 \"Whether, the interest paid to the H.U.F.account is not disallowable u/s.40(b) of the I.T.Act,1961? 2 Whether, in view of the recent full bench decision of the Gujarat High Court in the case of C.Chhotalal & Co.(150 I.T.R.276) the Tribunal was right in law in granting the allowance of interest paid to the H.U.F.account which was a partner in the assessee firm ?\" 2 The assessee is a partnership firm . For assessment year 1981-82 the relevant accounting period is year ended 31/3/1981. The assessee paid interest of Rs.50,619/- and claimed the same as allocable deduction in light of the decision of this Court in case of Sajjanraj Divanchand, 125 ITR 654. The I.T.O. negatived the claim and hence the assessee preferred an appeal before the C.I.T.(Appeal). The C.I.T.(Appeal) following the decision in case of Sajjanraj Divanchand (Supra) allowed the appeal and against the said order revenue preferred an appeal before the Tribunal. The Tribunal upheld the order of C.I.T.(Appeal). 3 We have heard Mr.B.B.Nayak, learned Counsel for the applicant-revenue. Though served, none appears on behalf of the assessee. 4 The decision of this Court in case of Sajjanraj Divanchand (Supra) has been held to be no longer good law by the Full Bench of this Court in case of C.Chhotalal & Co., 150 ITR 276, therefore, the reasoning which appeals the C.I.T. (Appeal) and Tribunal is no longer available. 5 Further more, the issue now stands concluded by the decision of the Apex Court in the cases of Brij Mohan Das Laxman Das vs. C.I.T., 223 ITR 825, Suwalal Anandilal Jain vs. C.I.T., 224 ITR 753 and C.I.T. vs. Kanji Shivji, 242 ITR 124. In all the three decisions it has been held that the interest paid to a person in any capacity other than that of a partner is not hit by provision of Section 40B of the Act. As the facts of the present case show that the interest was paid to the H.U.F. in a separate account while the profits were credited in a separate account and maintenance of separate accounts in relation to the same entity would make no difference. Applying the ratio of the aforesaid decision of the Apex Court we hold that the Tribunal was in error in holding that the interest paid to the account of H.U.F was not disallowable under section 40B of the Act. 6 Both the questions referred to us are therefore answered in the negative i.e. in favour of the revenue and against the assessee. 7 The reference stands disposed of accordingly with no order as to costs. Sd/- Sd/- (M.S.Shah, J) (D.A.Mehta,J) m.m.bhatt "