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Issues:
1. Allowability of hotel charges as expenditure under Section 10(2)(xv) of the Income-tax Act. 2. Taxability of excess interest received from partners in the hands of the firm. Analysis: Issue 1: The judgment involves a reference under Section 66(1) of the Indian Income-tax Act, where the assessee, a registered firm, claimed deductions for hotel charges incurred by partners during business tours. The Income-tax Officer disallowed these charges, which were later partially allowed by the Appellate Assistant Commissioner and the Appellate Tribunal. The court held that the hotel charges for business tours are not allowable expenditure under Section 10(2)(xv) of the Income-tax Act, citing a previous decision. Issue 2: Regarding the taxability of excess interest received from partners, the firm had paid interest to partners for money borrowed from them, and partners had also paid interest for money borrowed from the firm. The Income-tax Officer added back the total interest paid by the firm to partners without deducting the interest received from partners. The Appellate Assistant Commissioner and the Tribunal adjusted the amounts and disallowed interest paid by the firm to partners as per Sections 10(2)(iii) and 10(4)(b) of the Income-tax Act. The court affirmed this treatment, emphasizing that partners borrowing from the firm diverts capital for personal use, and interest paid by partners should be treated as profits made by the partnership. The court referred to relevant provisions of the Income-tax Act and the Indian Partnership Act to support its decision. It highlighted that partners' financial transactions with the partnership should not result in deductions for interest paid by the firm to partners. The court commended the fair treatment by the Appellate Assistant Commissioner and the Tribunal in handling the partner's financial transactions. The court answered the second question affirmatively and directed the assessee to pay the costs of the reference.
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