1986 (9) TMI 15

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.....-This is a reference under section 256(2) of the Income-tax Act, 1961. The following question has been referred by the Tribunal: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in disallowing the interest paid to the partners while computing the capital gains?" The assessment year is 1971-72. The assessee which is an unregistered firm had purchased a piec....

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.... that in computing the capital gains, only the cost of acquisition of the asset and cost of improvement to the asset and expenditure incurred wholly and exclusively in connection with the transfer of the asset can be deducted. He, therefore, did not permit the deduction of the interest paid to the partners on capital. He accordingly refused to deduct the sum of Rs. 56,362 in computing the capital ....

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....herefore, it should be deducted. The example given by learned counsel may be correct, but that principle cannot be extended to the interest paid on capital. May be the capital contributed by the partners was utilised for purchasing the asset of the partnership firm, but it is not the same thing to state that the interest paid on such capital out of the profits would go to augment the cost of ac....