COMMISSIONER OF INCOME TAX Vs. KAMADHENU

JUDGEMENT

(1.) IN pursuance of the directions of this court in T. C. P. Nos. 693 and 694 of 1985, dated November 25, 1984, the Appellate Tribunal has stated a case and referred the following questions of law for our consideration :

(2.) THE assessee is a firm carrying on business in textiles. In the assessment completed for the assessment year 1979-80, the Income-tax Officer held that for the purpose of applying the provisions of Section 40(b) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), only the gross interest should be taken into account and not the net interest. A sum of Rs. 11,859 was the interest payment made by the assessee. THE sum of Rs. 11,859 is made up of interest allowed to a partner amounting to Rs. 2,296 in his capital account and a sum of Rs. 9,063 being the interest on loan obtained by the partner, Shantaram from the Egmore Benefit Society for the purpose of the assessee's business on the security of his personal property. THE firm charged interest on the various amounts advanced to the partner and the amount of interest charged was Rs. 6,989. THE Income-tax Officer made an addition of not only the sum of interest of Rs. 9,063 but also the interest of Rs. 6,989.

(3.) ACCORDINGLY, we answer the questions of law referred to us as under :