1983 (11) TMI 31

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....y when the assessee was paying interest at the rate of 9.5 per cent. on its borrowals ?" The assessee in this case is a registered firm consisting of four partners. For the previous year ended March 31, 1968, corresponding to the assessment year 1968-69, the ITO, in the course of the assessment, found the following debit balances: Rs. 1. Partners' loan account 2,62,352 2. Partners' annuity deposit account 2,38,969 ----------------- 5,01,321 ----------------- As against this, the partners' capital accounts showed a total roughly of Rs. 1,50,000. The ITO took the view that the drawings of the partners as on March 31, 1968, amounted to Rs. 3,50,000. He also found that there was an increase in the overdraft account to th....

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.... accounts of the four partners had been credited with interest totalling Rs. 15,151 and that the loan taken by them in the aggregate worked out to Rs. 2,62,352. The firm also debited interest on such withdrawals and this amounted to Rs. 15,74.1. The Tribunal, there fore, felt that no adjustments between the loan account and the capital account is called for. Thereafter, the Tribunal went into the question as to whether the amount borrowed by the firm has gone for the purpose of business, and having regard to the substantial borrowing made by the partners from the firm, it held that the entire borrowing has been utilised for non-business purposes, i.e., for making advances to the partners, and, therefore, the interest paid on the borrowing c....