The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that interest/ salary received by a partner from a firm is not assessable as “other income”.
Rashmin Ramniklal Vora, the assessee challenged the order passed by the CIT(Appeals)-5, Ahmedabad on 24.12.2018 for A.Y. 2015-16 on the ground that the order is bad in law and erroneous as to facts since the judgment of the Supreme Court in the case of CIT. West v/s Rajendraprasad Moody, Calcutta.
The assessee filed a return of income for A.Y. 2015-16 on 30.09.2015 declaring total income at Rs. NIL. The Assessing Officer observed that from the perusal of the Profit and Loss account the assessee debited Rs. 17,65,962/- on account of interest. The assessee borrowed funds which have been invested in the firm M/s. Sweeto Apparels. The Assessing Officer observed that the assessee is maintaining an opening debit balance of Rs. 1,48,88,743/- and a closing debit balance of Rs. 37,45,645/- with the firm.
It was found that the assessee periodically withdrew the investments made in the firm. The Assessing Officer made disallowance of Rs. 17,65,962/- which was claimed as interest expenses under Section 57(iii) of the Act.
The appellant submitted that the assessee is a partner in M/s. Sweetoo Apparels and for the year 2006-07 the sales of Sweetoo Apparels was Rs. 2,74,86,340/- and net profit was Rs. 8,45,848/-. And stated that there was a credit balance in the assessee’s capital account i.e. Rs. 32,23,553/-.
Further submitted that nothing in the language of Section 57(iii) suggests that the purpose for which the expenditure is made should fructify into any benefit by way of return for the sake of income.
The Coram comprising of Ms Suchitra Kamble, Judicial Member observed that the assessee has paid net interest to the partnership firm but at the same time,the assessee has withdrawn more money from the partnership firm than invested in the partnership firm. Further, it was noticed that as per specific provision of Section 28(v) of the Income Tax any interest, salary etc. earned by a partner from a partnership firm is taxable under the head profit and gains of business or profession and there is no question of categorizing it under the head income from other sources.
The Tribunal viewed that the claim of the assessee for deduction under Section 57(iii) is not justifiable and has rightly been disallowed by the Assessing Officer and the CIT(A). The appeal of the assessee got dismissed.To Read the full text of the Order CLICK HERE
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Rashmin Ramniklal Vora vs ITO
CITATION: 2023 TAXSCAN (ITAT) 718
Counsel for Appellant: Shri Shreekant S. Shah, A.R
Counsel for Respondent: Shri Y. R. Raval, Sr. D.R
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