- (1.) The following question of law has been referred to this Court for opinion by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (for short 'the Tribunal'), arising out of I.T.A. No.660 (ASR)/1980 for the assessment year 1977-78: Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that for working out the interest to be disallowed under Section 40(b) of the Income-tax Act one has to take into account not only the interest paid to partner by the firm but also the interest paid to the firm by the partners
(2.) Learned Counsel for the Revenue could not dispute that the issue referred to above is squarely covered by the judgment of Hon'ble the Supreme Court in Keshavji Ravji and Co. v. Commissioner of Income Tax . It was held therein that where two or more transactions, in which interest is paid to or received from the partner by the firm, are shown to have the element of mutuality, Section 40(b) of the Income- Tax Act, 1961 (for short 'the Act'), does not preclude the quantifying of the interest on the basis of such mutuality. In such circumstances, the interest paid to a partner by the firm in excess of what is received from the partner could alone be dealt with under Section 40(b) of the Act.
(3.) Following the dictum of law laid down in Keshavji Ravji's case (supra), the reference is answered against the Revenue and in favour of the assessee.;