COMMISSIONER OF INCOME-TAX vs. BHOJRAJ SURENDRAPAL

ITR/72/1989HC GujaratGJHC24012853198904 October 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
AI SummaryRemanded

What did the High Court hold?

The Gujarat High Court held that the Tribunal was in error in allowing the interest paid to the HUF account as a deduction. The Court noted that the decision in Sajjanraj Diwanchand, which the Tribunal relied upon, had been overruled by the Full Bench decision in V. Chhotalal & Company. Furthermore, the Supreme Court in Brij Mohan Das Laxman Das and Suwalal Anandilal had clarified that any interest paid to a partner, irrespective of their capacity, is disallowable under Section 40(b) of the Income-tax Act. Consequently, both questions referred to the Court were answered in the negative, in favour of the revenue and against the assessee. The reference was disposed of accordingly.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, referred two questions to the Gujarat High Court concerning the assessment year 1982-83. The Assessing Officer had disallowed Rs. 51,909 as interest paid by the assessee firm to two partners, who were karta of their respective Hindu Undivided Families (HUFs). The assessee claimed this deduction based on a Gujarat High Court decision in Sajjanraj Diwanchand. However, the Assessing Officer, CIT(Appeals), and the Tribunal, following Sajjanraj Diwanchand, upheld the assessee's claim. The revenue then filed this reference.

What were the issues?

1. Whether the interest paid to the HUF account is not disallowable under Section 40(b) of the Income-tax Act, 1961? 2. Whether, in light of the Gujarat High Court's Full Bench decision in V. Chhotalal & Company (150 ITR 276), the Appellate Tribunal was correct in law in allowing the interest paid to the HUF account, which was a partner in the assessee firm? Assessee's Contentions: The assessee relied on the Gujarat High Court's decision in Sajjanraj Diwanchand (126 ITR 654) to claim the deduction for interest paid to the HUF account. The Tribunal followed this precedent. Revenue's Contentions: The revenue argued that the interest paid to the HUF account was disallowable. They pointed out that the Gujarat High Court's decision in Sajjanraj Diwanchand was no longer good law due to the Full Bench decision in V. Chhotalal & Company (150 ITR 276). The revenue also cited Supreme Court decisions in Brij Mohan Das Laxman Das vs. C.I.T. (1997) 223 ITR 825 and Suwalal Anandilal vs. C.I.T. 224 ITR 753, which held that interest paid to a partner is hit by Section 40(b) of the Act.

Which sections of the Income-tax Act were involved?

Section 40(b)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 72 of 1989

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 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

The order continues below.

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