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Tax Publishers Sankalp v. DCIT [ITA No. 415/CTK/2018, ITA No. 237/CTK/2019, dt. 21-10-2020] : 2020 TaxPub(DT) 4311 (Cuttack-Trib.) Disallowance under section 14A on interest on capital paid to partners of a firm *Facts:* Assessee firm was in receipt of exempt dividend income which arose from investments made out of adequate partners capital account balances. Interest was paid on the partner's capital account. Assessing officer invoked section 14A read with rule 8D(ii) disallowing the interest paid to the partners. On higher appeal - Held in favour of the assessee that no disallowance under section 14A read with rule 8D(ii) of the Act can be made in the hands of the firm by disallowing interest paid to partners which anyways is taxable as business income and is out of mutuality under partnership law allowable under section 40(b) of the Act exclusively - partnership is the relationship between persons who have agreed to carry on a business carried on by all or any of them acting for all. Disallowance under section 14A read with rule 8D(iii) for indirect expenses attributable to earn tax-exempt incomes is however possible thus remanded for this computation. *Applied:* Quality Industries v. JCIT, (2016) 161 ITD 217 (Pune) : 2016 TaxPub(DT) 4248 (Pune-Trib), ASK Partners v. ACIT in ITA No. 187/JP/2017 ITAT Jaipur for assessment year 2013-14 Order, dated 31-12-2018 : 2019 TaxPub(DT) 0705 (Jp-Trib)

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Sankalp v. DCIT [ITA No. 415/CTK/2018, ITA No. 237/CTK/2019, dt. 21-10-2020] : 2020 TaxPub(DT) 4311 (Cuttack-Trib.)

Disallowance under section 14A on interest on capital paid to partners of a firm

Facts:

Assessee firm was in receipt of exempt dividend income which arose from investments made out of adequate partners capital account balances. Interest was paid on the partner's capital account. Assessing officer invoked section 14A read with rule 8D(ii) disallowing the interest paid to the partners. On higher appeal -

Held in favour of the assessee that no disallowance under section 14A read with rule 8D(ii) of the Act can be made in the hands of the firm by disallowing interest paid to partners which anyways is taxable as business income and is out of mutuality under partnership law allowable under section 40(b) of the Act exclusively - partnership is the relationship between persons who have agreed to carry on a business carried on by all or any of them acting for all.

Disallowance under section 14A read with rule 8D(iii) for indirect expenses attributable to earn tax-exempt incomes is however possible thus remanded for this computation.

Applied: Quality Industries v. JCIT, (2016) 161 ITD 217 (Pune) : 2016 TaxPub(DT) 4248 (Pune-Trib), ASK Partners v. ACIT in ITA No. 187/JP/2017 ITAT Jaipur for assessment year 2013-14 Order, dated 31-12-2018 : 2019 TaxPub(DT) 0705 (Jp-Trib)