COMMISSIONER OF INCOME TAX vs. RATILAL MOHANLAL CHEVLI

ITR/350/1983HC GujaratGJHC24011817198309 December 1996Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA2 pages
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What were the facts?

The Commissioner of Income Tax, Surat, referred a question of law to the High Court of Gujarat at Ahmedabad arising from an Income Tax Appellate Tribunal (ITAT) order. The assessment year in question is 1977-78. The dispute concerns whether payments made by the assessee to its partners were liable for disallowance under Section 40(b) of the Income Tax Act, 1961. The ITAT had previously ruled that these payments were not liable for disallowance. The High Court is now considering this reference.

What did the High Court hold?

The High Court, following the decision in Commissioner of Income Tax Vs. Yoganand Textiles (202 ITR 869), answered the reference in the negative, in favour of the Revenue and against the assessee. This means the Tribunal was not right in law in coming to the conclusion that the majority payments made by the assessee to its partners were not liable to be disallowed under Section 40(b). The Court noted that the specific question of whether interest paid by a firm to an individual partner in a representative capacity is to be taken into account for the purpose of clause (b) of Section 40 was decided in the Yoganand Textiles case. As there was no material on record to come to a conclusion on this specific aspect, the Tribunal was given the liberty to decide it in light of the observations made in the Yoganand Textiles decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the majority payments made by the assessee to its partners were not liable to be disallowed under Section 40(b) of the Income Tax Act, 1961? Assessee's Contention: Not recorded. Revenue's Contention: The Revenue contended that the answer to the question is covered by the ratio of the decision in Commissioner of Income Tax Vs. Yoganand Textiles, reported in 202 ITR 869, and that the question should be answered in the negative, in favour of the Revenue and against the assessee.

Which sections of the Income-tax Act were involved?

Section 40(b)

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 350 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

The order continues below.

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