TMI Blog1981 (4) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... as a creditor of the association and interest paid to him qua creditor was a legitimate business expenditure which was allowable as a deduction. Reliance was placed on the decision of the Madhya Pradesh High Court in CIT vs. Harandrai Shrikishan Akodia (1966) 61 ITR 50 (MP). The ITO held that the payment of interest amounted to payment to self and the expenditure could not be allowed as a deduction under the provisions of s. 36(1)(iii). He, therefore, completed the assessment under s. 143(3) adding back the amount of Rs. 14,173. 2. In appeal, the AAC agreed that the payment of interest was a specie of payment to self and could not be allowed. 3. The assessee is in appeal before us. It was contended that the provisions of s. 42(b) were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was that the accumulated profits represented deposits or loans made by them the firm and had no relationship to their admission to the benefits of partnership and, therefore, the interest could not be aggregated. He emphasised that the Supreme Court had stated that it could not consider that the accumulated profits could be equated with deposits or loans, because there was no agreement or contract to that effect. Such, he submitted, was the position here also and the members had only permitted the association to use the monies. 5. In reply, the ld. Counsel for the assessee submitted that in Srinivasan's case the Supreme Court had stated that there was no suggestion at all that the wife or minor sons had entered into an arrangement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly borne out in its letter of 3rd Aug., 1979 and also has been referred to by the ITO in his order of assessment. This position does not stand refuted in any manner. As a matter of fact, the analysis of the accounts also would show that profits were credited from year to year and the accumulated balance is profit minus drawings plus interest paid from 1975-76 onwards. As a fact, in the asst. yr. 1975-76, the claim for deduction was allowed. In 1976-77, the interest was added back, but there was no appeal. The asst. yr. 1977-78 is now in appeal before, us. There is no requirement of introduction of capital and hence there was no agreement in that respect. When the assessee held out from the very inception that the members had advance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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