Whether transaction of loan between a firm and its partner attractsSection.269SS of Income Tax Act?

Last updated: 02 March 2015

Court :
Delhi High Court

Brief :
Assessee is a Partnership firm involved in the business of banking and registered under the Kerala Money Lending Act.Notice u/s 148 of the Act was issued to the respondent-assessees. The firm had accepted payments from the partners, during the relevant year corresponding to the Assessment Years, in cash.AO held that in the case of a partnership firm, there is no difference between the firm and the partners. As a partner of the firm, he is a part of the firm itself. Section 269-SS of the Act has no application in a transaction between the partner and the firm. The AO, in his order, was of the view that the partners and the firm being two distinct and separate entities/persons are also in the mischief of Section 269-SS of the Act. AO concluded that the transactions under reference were not part of the current account or the capital account and held that interest was given to the partners on the amount advanced, which conclusively proved that transactions are between different persons whereby the firm has accepted and repaid loans in cash, and accordingly, initiated the proceedings under Section 271-D and 271-E and thereby imposed penalty under Section 271-D of the Act.

Citation :
CIT – Appellant – Versus – M/S. Muthoot Financiers – Respondent