Section 40(ba) — the law in short
What the courts have decided on section 40(ba), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
-
CIT v Jagdish Medical Agencies
High CourtHelps taxpayerNo later treatment found
My firm pays interest on a deposit standing in the name of an AOP, and one of my partners is a member of that AOP. Is the interest disallowed as interest to a partner?
No. An association of persons is a separate person under s.2(31)(v) and a separate assessable entity, different from the firm, so interest paid by a firm to an AOP is not interest paid to a partner and is outside s.40(b). The Allahabad High Court applied the Supreme Court's reasoning in Brij Mohan Das Laxman Das, which held that interest paid to a partner who represents his Hindu undivided family, on the deposit of his own individual funds, does not fall within s.40(b).
-
ACIT v ITD ITD CEM JV
ITATHelps taxpayerNo later treatment found
Our joint venture AOP reimburses its corporate members for expenses they incurred on the project. Is that caught by s.40(ba)?
Not where the payment is a pure reimbursement with no profit element. The Tribunal, adopting an earlier order of 30 July 2014 which it reproduced in full, accepted that s.40(ba) is very specific and calls for disallowance of payment of any kind by an AOP to its member, but held that the mischief the provision addresses is the enrichment of members through the back door, and that where the member is a company, distinct from its shareholders, and the payment is reimbursement of an expense with no profit element, no question of enrichment arises and s.40(ba) is not attracted. The Revenue's appeal was dismissed.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
