DEVI CINE PROJECTOR MANUFACTURINGCO., ETC. ETC. vs COMMISSIONER OF INCOME TAX

The Supreme Court held that under Section 40(b) of the Income Tax Act, 1961, the entirety of interest paid by a firm to its partner is not disallowable without considering the interest that the partner may have paid to the firm on borrowings. The Court overruled the previous decision in C.I.T. v. O.M.S.S. Sankaralinga Nadar & Co., 147 ITR 332, affirming that mutual transactions should be accounted for in quantifying interest. The appeals were allowed, and the matter was remitted to the Tribunal for fresh disposal in light of the established legal principle.