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TMI Blog1984 (12) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in all to Rs. 37,548 to its partners. It had also received interest from two of its partners, namely, Shri V. R. Shah and Shri H. S. Shah of Rs. 1,825 and Rs. 5,838 respectively on the amounts borrowed by them from the firm. The position of interest paid to and received from these two partners is as under: Name of the Partner Interest paid Interest received net paid Net received Shri V. R. Shah 4,880 1,825 3,055 Shri H. S. Shah 1,925 5,838 3,886 There was no receipt of interest form any other partners. The ITO, while disallowing the interest paid to the partners, under s. 40(b), included therein the gross amount of interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case in (1979) 11 CTR (All) 239 : (1982) 134 ITR 312 (All), "mis-read the earlier decisions of the same High Court in Sri Ram Mahadeo Prasad vs. CIT (1953) 24 ITR 176 (All) and Sri Ram Mahedeo Prasad vs. CIT (1979) 120 ITR 149 (All) and came to the conclusion that only the net amount of interest paid by the firm to the partners after adjusting the interest paid by the partners to the firm could be disallowed under s. 40(b)." While, however, purporting to follow the retinal of the earlier mentioned decisions. He was of the opinion, that in the earlier mentioned two decisions there was a categorical finding by the High Court, that only the gross amount of interest should be disallowed without making any adjustment for interest received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partner and both these kinds of payments are within the purview of s. 40(b) and hence are inadmissible as deduction, but in view of the decision of this Court in Sri Ram Mahadeo Prasad the net amount paid by the firm to its partners alone is disallowable. In view of these decisions, we answer the question referred to us in the affirmative, in favour of the assessee and against the Department." After referring to the above decision in (1953) 24 ITR 176 (All) and (1979) 120 ITR 149 (All), the CIT(A) was of the opinion that in (1979) 11 CTR (All) 239 : (1982) 134 ITR 312 (All), the Allahabad High Court had not properly appreciated the rationale of the decisions in these two cases and answered the question referred to it in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide for the disallowance of only the net amount of interest paid to the partner after adjustment of interest received from him and, therefore, the position in this regard prior to the amendment, was by implication, to the contrary, namely, the gross amount of interest should be disallowed. 6. We have carefully considered the rival submissions. We are of the opinion, that there is overwhelming authority in support of the view that, only the net amount of interest should be disallowed under s. 40(b) and not the gross amount of interest. (1979) 11 CTR (All) 239 : (1982) 134 ITR 312 (All) is directly on the subject and the same holds, that only the net amount of interest paid by the firm to its partners is disallowable. In coming to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n he had lent, the excess amount paid as interest was treated as profits." From the above observations, it is quite evident, that even in (1953) 24 ITR 176 (All), the issue was exactly identical as one decided in (1982) 134 ITR 312 (All) and the one before us. The finding of the High Court in (1953) 24 ITR 176 (All) is quite categorical that the net amount of interest paid to the partners should be disallowed and if the net amount happens to be a payment by the partners to the firm, the same should be assessed as the profit of the firm. In view of this, we are of the opinion that this issue has already been decided by the Allahabad High Court in (1953) 24 ITR 176 (All) and the same has been the basis of the latest decision of the same Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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