COMMISSIONER OF INCOME TAX Vs. INDIAN FIREWORKS INDUSTRIES

JUDGEMENT

(1.) PURSUANT to the direction of this Court in TCP Nos. 514 and 515 of 1980, dt. 23rd Feb., 1981, the Tribunal, Madras Branch 'C', has drawn up the statement of cases and has referred the following question of law for the opinion of this Court, under S. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act") :

(2.) THE relevant facts of the case are as follows : The assessee, the Indian Fireworks Industries, Sivakasi, is a registered partnership under the Indian Partnership Act, 1932. The reference relates to the asst. yrs. 1975 -76 and 1976 -77. In making the assessments, the ITO disallowed the gross interests paid to the partners by the assessee -firm of Rs. 54,775 and Rs. 61,827, respectively, under S. 40(b) of the IT Act, 1961, rejecting the assessee's plea that when a partner receives as well as pays interest to the firm only the net interest should be disallowed under S. 40(b) of the Act. The assessee preferred an appeal to the AAC. The AAC allowed the appeal of the assessee holding that only the net interest paid by the partner should be disallowed under S. 40(b) of the Act. On further appeal preferred by the Revenue, the Tribunal concurred with the view of the AAC that only the net interest paid by the party should be disallowed under S. 40(b) of the Act, following the decision of the Tribunal in the case of another assessee in ITA No. 1237/Mad of 1977 -78, dt. 5th Aug., 1978.

(3.) THE statutory provision under S. 40(b) of the Act reads as follows :