TMI Blog1989 (5) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,08,287 as, under section 40(b) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), deduction of interest paid to the partners could not be allowed. The assessee obtained some relief from the Commissioner of Income-tax (Appeals). On further appeal to the Income-tax Appellate Tribunal (for short the Tribunal ), Delhi, the assessee got the entire relief in regard to the interest of ₹ 1,08,287 paid to the partners, in view of certain decisions referred in the order. In this background, the following question has been referred for the opinion of this court : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of ₹ 1,08,287 as interest paid to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by a firm to any partner of the firm who has also paid interest to the firm, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the firm to the partner exceeds the payment of interest by the partner to the firm. This Explanation is in tune with the decision rendered by four High Courts referred to on behalf of the assessee. After insertion of the Explanation 1, the question cropped up before the Central Board of Direct Taxes as to whether the Explanation would be applicable prospectively or was merely of a clarificatory nature and would also be applicable for earlier years in cases which may be pending in courts. The Central Board of Direct Taxes took a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would be applicable to the assessment years prior to April 1, 1985. However, the Madras High Court in O. M. S. S. Sakaralinga Nadar and Co.'s case [1984] 147 ITR 332 took a different view. On this matter, we have held in Income-tax Reference No. 43 of 1981 (Hindustan Steel Forgings v. CIT [1989] 179 ITR 280 (P H)), decided on March 2, 1989, that the aforesaid decision of the Board is of a clarificatory nature and what was hidden was made apparent. There, we were considering the effect of Explanation 2. The circulars issued by the Board are not binding on courts because if the assessee wants to challenge its correctness, it is open to him to do so. But at the same time, the Supreme Court has held in numerous cases that the circul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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