- (1.) ITA No. 3100/Mds/88 is by the assessee for the assessment year 1983-84 and ITA. No. 3769/Mds/88 is by the Revenue for the assessment year 1984-85. In the assessee firm there were two partners Shri V. M. Ajmeera and Shri P. V. Ajmeera, who represented their respective H. U. F. Yet another partner was Smt. U. M. Ajmeera. Interest was paid on individual funds contributed by S/Sri V. M. Ajmeera and P. Y. Ajmeera. Such payment of interest amounted to Rs. 24,501 to Sri V. M. Ajmeera and Rs. 39,103 to Shri P. V. Ajmeera in the assessment year 1983-84. The I. T. O. added back these amounts by applying the provisions of section 40(b) and the C. I. T. (A) upheld the inclusion of the same.
(2.) Before us, the assessee submitted that following the decision of the Andhra Pradesh High Court in N. T. R. Estate V. Cit, 1986 157 ITR 285 as also the decision of the Full Bench of the Madhya Pradesh High Court in Cit V. Narbharam Popatbhai And Sons, 1987 166 ITR 534 , and the Punjab and Haryana High Court in the Case Of Hindustan Steel Forgings V. Cit,1989 TaxLR 996, this disallowance was not warranted. The learned departmental representative, on the other hand, urged that following the decision of the Madras High Court in Dwarkadas Rameshwar Goenka V. Cit, 1981 127 ITR 397 and in the Case Of Venkatesh Emporium V. Cit, 1982 137 ITR 593 , the amounts had to be added back. Such, he submitted, was the decision of the Full Bench decision of the Allahabad High Court in the case of Cit V. Nitro Phosphetic Fertilizer, 1988 174 ITR 269 .
(3.) We have considered the rival submissions A similar issue had come up before the Tribunal in the case of Asera Finance Corpn. V. Ito,1987 63 CTR(Mad) 66. There the decision of the Madras High Court referred were considered by the Tribunal in the light of the Explanation introduced by the Taxation Laws (Amendment) Act, 1984, which came into force on 1-4-1985. The Tribunal observed that in the case of N. T. R. Estate (supra), the Andhra Pradesh High Court had held that the explanation was introduced to avoid inconvenience to taxpayers and reduce litigations and it was clarificatory in nature and the present type of case was one of the specific cases where according to the explanation interest paid was not to be added back. Since the amendment was clarificatory in nature, the Tribunal held that the interest disallowance could not be made even in the assessment year prior to the introduction of the explanation. That the explanation is clarificatory in nature is the view taken by the Full Bench decision of the Madhya Pradesh High Court as also by the dissenting Judge in the Full Bench decisions of the Allahabad High Court. The Punjab and Haryana High Court in the case of Hindustan Steel Forgings (supra) has further relied on the Circular printed at page , [1984]149ITR127(Mad) under the heading "Reducing Litigation". The relevant portion of the Circular read as under :- "2. A number of amendments have been made to bring out the legislative intention more clearly so that further controversy and litigation regarding the true intent and purport of these provisions is avoided. To illustrate :- (b) It has also been clarified that where a person is a partner in his representative capacity, interest paid to him in his individual capacity will not be disallowed under the abovementioned provisions and vice versa." The Punjab and Haryana High Court apart from taking the view that the explanation was clarificatory in nature, held that in view of the Circular of the Board it was settled law having regard to the decision of the Supreme Court that such Circulars were binding on the department. In view of the aforesaid discussion and the decisions of the various High Courts referred to, I am unable to agree with the learned departmental representative that the decision of the Tribunal in the case of Asera Finance Corpn. (supra) requires reconsideration inasmuch as the provisions of the Explanation to section 40(b) are only clarificatory. I hold that the disallowance of the interest to the persons concerned was not warranted on the facts of the case.;