Decided on February 27,1982



K.C. Srivastava, Accountant Member - (1.) THIS appeal by the assesses is against the order of the AAC relating to the assessment year 1980-81. The ground is against the disallowance of interest to the extent of Rs. 2,126 while making the assessment on the assessee-firm. The ITO found that this amount of interest had been paid by the assessee-firm to LIC and this loan had been raised by the partners from the LIC against their insurance policies. The ITO was of the view that as a loan was raised by the partners of the firm, the payment of interest to LIC on behalf of the partners could not be allowed. He, therefore, added Rs. 2,126 while computing the assessee's income.
(2.) The AAC has confirmed this order. Before us, it has been submitted by the learned counsel for the assessee that the lower authorities have not considered the facts of the case properly. It was submitted that this loan has been in existence for seveal years and originally the loan of Rs. 50,000 had been raised from the LIC against the security of insurance policies of certain persons some of whom were the partners of this firm. The total value of the policies which was given as security was as under : JUDGEMENT_9790_TLIT0_19820.htm Thus, on the security of the policies for Rs. 80,000, a loan of Rs. 50,000 had been raised and out of this now a loan of Rs. 30,000 or so remains to be payable back to the LIC. It was pointed out that many of these persons were no more partners in this firm and only Shri Mitter Pal Aggarwal was a partner of this firm. He pointed out that Shri Jagdish Kumar Aggarwal and Shri Manohar Pal Aggarwal ceased to be partners in 1977. Shri B.M. Aggarwal was representing the family trust and was not a partner himself in his individual capacity. It was contended that the interest was paid by .the firm to the LTC and not to the partners and the loan which had been taken was credited in the account of the LIC and no part of it was credited to the capital account of any of the partners. It was, therefore, contended that the firm has never paid any interest to any of the partners and the interest which has been paid to the LIC was an allowable deduction as the loan has been utilised for the purpose of the firm.
(3.) THE learned counsel has also referred to the order of the Commissioner (Appeals) in the assessment year 1980-81, where on similar facts the Commissioner (Appeals) disallowed interest to the extent of one-sixteenth out of the total claim on the policies of the partner Shri Mitter Pal Aggarwal. It is, however, contended that even this amount should not have been disallowed as this was not an interest paid to a partner.;

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