KESHAVJI RAVJI & CO. ETC. ETC. vs COMMISSIONER OF INCOME TAX

The Supreme Court interpreted Section 40(b) of the Income Tax Act, 1961, which prohibits the deduction of interest paid by a firm to its partners. The Court held that the Explanation introduced by the Taxation Laws (Amendment) Act, 1984, allows for the net interest to be considered, meaning that interest received from partners should be set off against interest paid to them. The Court affirmed the Appellate Tribunal's decision that only the net interest should be disallowed, thus reversing the High Court's ruling in favor of the Revenue.