1985 (7) TMI 145 - AT - Income Tax

Summary

Issues:
- Addition of interest paid by the assessee-firm on capital contributed by a partner
- Interpretation of provisions of section 40(b) of the IT Act, 1961
- Relevance of previous decisions in similar cases

Analysis:

The Departmental appeal involved the addition of Rs. 10,085 as interest paid by the assessee-firm on capital contributed by a partner, which was deleted by the ld. AAC. The ITO's action was reversed by the AAC based on a previous decision in the case of Kanhaya Lal Rameshwar Dass & Co. The Departmental Representative cited a Gujarat High Court decision to support the Revenue's position, while the assessee's counsel argued that the issue was covered against the Revenue by earlier decisions. The Tribunal noted conflicting decisions and the need to review the matter.

The Tribunal considered the latest legal position and observed that the earlier decision supporting the assessee's contention was based on a now-overruled Gujarat High Court decision. The Full Bench decision provided a new perspective, emphasizing that interest paid to an HUF must be disallowed, while interest paid in the partner's individual account must be disallowed. As no other Full Bench decision was presented, the Tribunal followed the Full Bench decision overruling the previous Gujarat High Court decision, leading to the reversal of the AAC's action in favor of the Revenue.

Ultimately, the Tribunal allowed the appeal, highlighting the significance of the Full Bench decision in shaping the outcome. The judgment underscored the importance of legal precedents and the impact of Full Bench decisions on resolving conflicting interpretations of the law, ultimately leading to a reversal of the initial decision in favor of the Revenue.