1991 (5) TMI 14

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.... K. GULATI J. - In compliance with the direction of this court, the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that only the net amount of interest paid to a partner after deducting the interest paid by him could be added to the firm's....

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....capital accounts of the respective partners. From the details set out in the statement of the case submitted by the Tribunal of the amount of interest paid to the different partners by the firm and the interest charged from them, it is evident that a sum of Rs. 38,738 was paid as interest to its partners by the firm and the partners had in their turn paid a sum of Rs. 7,239 as interest to the firm....

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....n is whether disallowance of interest, in terms of section 40(b) of the Income-tax Act, 1961, paid by a firm to its partner should be the gross amount of such interest or should be confined to the net amount after setting off the interest, in turn, paid by the partner to the firm on his borrowings from the firm. The controversy now stands finally settled in favour of the assessee by a decision ....