TMI Blog1999 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1978-79, the assessee debited the interest of Rs. 13,18,829 against which it had received interest of Rs. 1,38,205. The Income-tax Officer disallowed the interest under section 40A(8) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), on the gross amount of interest without deducting the interest received. In appeal, the Commissioner of Income-tax (Appeals) upheld the decision of the Income-tax Officer. In further appeal by the assessee, the Tribunal held that for determining the disallowance, the net amount of interest should be considered. According to the Tribunal, the point at controversy was whether in order to determine the disallowance of interest under section 40A(8) of the Act, the amount of interest shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des any money borrowed by a company, but does not include any amount received by the company--- (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government ; (ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India ; (iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank) ; (iv) as a loan from any institution or body specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he open market on the date of creation of the mortgage, charge or pledge for the relevant loan; (c) 'financial company' means--- (i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions ; or (ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature ; or (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the firm to the partner exceeds the payment of interest by the partner to the firm. Explanation 2.---Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as 'partner in a representative capacity' and 'person so represented' respectively),--- (i) interest paid by the firm to such individual or by such individual to the firm otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause ; (ii) interest paid by the firm to such individual or by such individual to the firm as partner in a representative capacity and interest paid by the firm to the person so represented or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner by the firm in excess of what is received from the partner could alone be excluded from deduction under section 40(b)." In our opinion, the ratio laid down by the apex court in Keshavji Ravji and Co.'s case [1990] 183 ITR 1, can be invoked by the assessee and the principle underlying section 40(b) (as it then stood) would also apply to the provisions of section 40A(8) (as it then stood), In our opinion, therefore, the Tribunal was right in allowing the appeal filed by the assessee. For the foregoing reasons, in our opinion, the question referred to us, deserves to be answered in the affirmative, i.e., in favour of the assessee and against the Revenue. Reference is accordingly disposed of. In the facts and circumstances, no order as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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