Cit vs Ram Lal Hiralal
2002 Latest Caselaw 1211 Del

JUDGMENT

D.K. Jain, J.

At the instance of the revenue, the Tribunal, Delhi Bench 'D' has referred under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act), the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of interest of Rs. 11,223 credited to the account of Jagdish Chand (HUF) and Rs. 9,554 in the account of Hiralal (HUF) in the firm's books on the ground that section 40(b) did not apply to the interest credited to the aforesaid two accounts?"

2. The reference pertains to the assessment year 1977-78. Since answer to the question referred stands concluded by the decision of the Supreme Court in Brij Mohan Das Laxman Das v. CIT (1997) 223 ITR 825 (SC), we deem it unnecessary to state the facts.

2. The reference pertains to the assessment year 1977-78. Since answer to the question referred stands concluded by the decision of the Supreme Court in Brij Mohan Das Laxman Das v. CIT (1997) 223 ITR 825 (SC), we deem it unnecessary to state the facts.

In the said decision, the Supreme Court has held as under :

"Explanation 2 to section 40(b) of the Income Tax Act, 1961, in the context of clause (b) of section 40, is declaratory in nature. Therefore, even for periods anterior to 1-4-1985 with effect from which date Explanation 2 to section 40(b) of the Act was inserted, any interest paid to a partner, who is a partner representing his Hindu undivided family, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of section 40. Such interest would be allowable as a deduction in the computation of the profits of the firm."

3. In view of the said authoritative pronouncement, the question referred has to be answered in the affirmative, i.e., in favor of the assessed and against the revenue.

3. In view of the said authoritative pronouncement, the question referred has to be answered in the affirmative, i.e., in favor of the assessed and against the revenue.

4. The reference stands disposed of.

4. The reference stands disposed of.