LexDEVI CINE PROJECTOR MANUFACTURING CO., ETC. ETC. versus COMMISSIONER OF INCOME TAX
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A DEVI CINE PROJECTOR MANUFACTURING CO., ETC. ETC. ).. v. . COMMISSIONER OF INCOME TAX 13 FEBRUARY 5, 1990 [M.N. VENKATACHALIAH, N.D. OJHA AND .. J.S. VERMA, JJ.] Income Tax Act, 1961: Section 40(b)-Disallowance of interest- Firm paying interest to partner-Partner also paying interest to firm on c borrowing from firm-Whether such interest to be confined only to net amount after setting off interest paid by partner. Constitution of Lndia, 1950: Article lJ(r-Special Leave Petitions ~ filed against High Court's rejection of assessee's applications under Sec- lion 256(2) of the Income Tax Act, 1961-/n view of settled position on D point of law involved and to avoid time consuming procedure, Special Leave Petitions treated as arising out of appellate orders of Tribunal and matter remitted to Tribunal for disposal afresh in the light of pro- nouncement of Court. ) The Income Tax Appellate Tribunal in appeals preferred before it E by the revenue held that the entirety of interest paid by a firm to its partner was cmatlowable under Section 40(b) of the Income Tax Act without reference to the interest that might, in turn, have been paid by the partner to the firm on his borrowings. On appellants-assessees' application under Section 256( I) of the Act, the Tribunal declin.ed to state a case I and refer a question of law for the opinion of the High Court. The ~ F appellants-assessees then moved Tax case petitions under Section 256(2) of the Act before the High Court. The High Court rejected the applica- lions on the view that there was no referable question of law arising out of the appellate order of the Tribunal having regard to its earlier deci· sion in C./. T. v. O.M.S.S. Sankaralinga Nadar & Co., 147 !TR 332, on which the Tribunal had relied. The appellants-assessees filed special 'G leave petitions in this Court. Treating the special leave petitions as directed against the main )- appellate order of the Tribunal, and allowing the appeals, this Court, HELD: It is now settled by the pronouncement of this Court in fH Keshavji Ravji & Co. v. C./. T., [1990] l S.C.R. 243 that where two or 268 DEVI CINEMA v. C.l.T. [VENKATACHALIAH, J.] 269 more transactions on which interest is paid to or received from the A partner by the firm are shown to have the element of mutuality and are referable to the funds of the partnership as such, Section 40(b) should not be so construed as to exclude in quantifying the interest, if any, paid to a partner by the firm in excess of what was received from the partner. [270F] K~shavji Ravji & Co., [1990] 1 S.c.R. 243, followed. C.l. T. v. O.M.S.S. Sankara/inga Nadar & Co., 147 ITR 332, over-r\l\ed. In the instant case, the ap.pfa. ls. were dir~cted against the High Court's orders rejecting the assesse~'s (lpplications um\er. Section Ii. <;'. 256(2) of the Act. However, remitting the cases to the High Court in the normal course for necessary action wo11ld be an idle, time-consum\ng and avoidable formality. Further, as the position is settled on the point raised, interests of justice would be served by treating the 3ppeals ~s directed against the lllain appellate orders of the Tribunal and remit-. g ting the cases to the Tribunal for disposal. [270B; 271A-B] Accordingly, the orders of the Tribunal and of the High Court are set aside, and the appeals remitted to the Tribunal for disposal afresh on the extent of disallowance of interest under Section 40(b) of the Act in the light of pronouncement of this Court in Keshavji Ravji & Co. v, ~ C.I. T., [1990] 1 s.c.R.2'13. [27IE-Fl CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1185 to l 188 (NT) of 1990. From the Judgments and Orders dated 7.H.198?, 12.8.85, 6.~,85 f. ~ and 24.7.86 of Madras tJigh Court in T.c.P. Nos, 739/85, 313/85, , 260/84 and 42/86. · - · '( T.A. Ramachandran and Mrs. Janaki Ramachandran for (he Appellants. S.C. lylanchanda, B.B. Ahuja and Ms. A. Subhashini for the Respondent. The Judgment of the Court was delivered by G, VENKA T ACHALIAH, J. These four petitions for 11rant of H A B D E F G H 270 SUPREME COURT REPORTS [1990] 1 S.C.R. special leave arise out of the orders of the High Court of Judicature at Madras in the corresponding four Tax Case Petitions rejecting the assessee's applications under Section 256(2) of the Income-tax Act, 1961 and the reference of a question of law whether the disallowance under Section 40(b) of the Incom
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