The Tax Publishers2020 TaxPub(DT) 4311 (Ctk-Trib) : (2020) 208 TTJ 0399

INCOME TAX ACT, 1961

Section 14A, Rule 8D(2)(ii)

In case of assessee-partnership firm payment of interest to partners towards the use of partner's capital as per provisions of partnership deed could not be subjected to disallowance under section 14A read with rule 8D(ii) as interest was simultaneously subjected to tax in the hands of partners and was merely in the nature of capital item in hands of partners.

Disallowance under section 14A - Expenditure against exempt income - Interest expenses under rule 8D(2)(ii) - Proportionate amount of interest paid on partners' capital account where major portion of partner's capital account was invested by the firm in acquiring of securities leading to tax free income

AO noticed that major portion of partner's capital account was invested by assessee-firm in acquiring of mutual funds and other share transaction, which did not form part of total income. Further, assessee had shown dividend income and other long-term capital gain in the return of income as exempted income . Accordingly, AO computed disallowance under section 14A read with rule 8D(ii) of proportionate amount of interest paid on partners' capital account. Held: Payment of interest to partners towards the use of partner's capital as per provisions of partnership deed could not be subjected to disallowance under section 14A read with rule 8D(ii) as interest was simultaneously subjected to tax in the hands of partners and was merely in the nature of capital item in hands of partners.

Followed:Quality Industries v. JCIT, (2016) 161 ITD 217 (Pune) : 2016 TaxPub(DT) 4248 (Pune-Trib)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16 & 2016-17



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