CHANDRIKA PRASAD RAM SWARUP Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 66(3) of the Income -tax Act (Act No. XI of 1922) by the Commissioner of Income -tax in accordance with the order of this Court passed on an application filed by firm Chandrika Prasad Ram Swarup hereinafter referred to as the assessee firm and the questions of law that fall to be decided are as follows : -

(2.) IT is agreed on all hands that the present case is governed not by the provisions of the Indian Partnership Act of 1932 but by the Indian Contract Act and reference to the Partnership Act in question No. (1) is, therefore, erroneous.

(3.) THE assessee firm appealed to the Assistant Commissioner of Income -tax who with a slight modification, which is immaterial for the decision of the present reference, sustained the assessment made by the Income -tax Officer. In appeal before the Assistant Commissioner the assessee firm put forward an argument in the alternative claiming allowance for a further sum of Rs. 51,090 on the allegation that this amount was this amount was paid by it to one of its partners, viz., to the firm Messrs. Behari Lal Ram Charan, on account of interest on the advance made to the assessee firm. It was stated before the Assistant Commissioner of Income -tax that this item of interest was not claimed in the course of assessment before the Income -tax Officer, as interest paid to Behari Lal Ram Charan in previous years was not allowed on the ground that advances made by a partner cannot be treated as a loan to the firm, and it was contended that, if as a matter of law one firm cannot be a partner with another firm, Messrs. Behari Lal Ram Charan being a firm cannot be legally held to be a partner of the assessee firm, and, as such, the interest paid to Behari Lal Ram Charan by the assessee firm should be taken into account in making the assessment. This argument for certain reasons, which it is unnecessary to state, was rejected by the Assistant Commissioner.