Case Law Details
Savla Agencies Vs JCIT (ITAT Allahabad)
ITAT Allahabad held that the interests on the credit balance in the capital account of the partners of the firms has to be calculated on the actual duration of the credit remains in the capital account and not on opening or closing day of financial year.
Facts- The matter here relates to disallowance of interest on capital accounts of the partners of the firms. Notably, the assessee calculated the interest on the daily product basis whereas the AO took the closing balance in the capital account and re-computed the allowable interest under section 40(b)(iv) of the Income Tax Act read with Clauses of the partnership firm which allows interest payment to the partners @ 12%. CIT(A) dismissed the appeal filed by the assessee. Being aggrieved, the present appeal is filed.
Further, AO also disallowed the claim of interest payment to the legal heirs of the deceased partners.
Conclusion- Held that the interests on the credit balance in the capital account has to be calculated on the actual duration of the credit remains in the capital account and not on opening or closing day of financial year. In such a case, if a partner keeps a credit balance on the opening day but subsequently withdraws the amount then payment of interest on the opening balance will not be proper and justified. Similarly, if the partner withdraws the amount at the fag end of the financial year then the payment of interest only on the closing balance would also be not proper and justified when a credit balance remained for the whole financial year except on the last date of financial year.
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