Satish Chandra, C.J.

1. THE assessee was a partnership firm. Its partners had a capital account as well as a current account with the firm. The firm paid interest to the partners on the balances in the capital account. The firm also charged interest from the partners on the debit balances of their current account.

2. FOR the assessment years 1970-71, 1972-73 and 1973-74, the ITO disallowed the entire amount of interest paid by the firm to its partners in respect of the capital account under Section 40(b) of the I.T. Act. The assessee appealed. The AAC held that it was the net amount paid by the firm to the partner, after adjusting the interest paid by the partner to the firm, that alone could be disallowed under Section 40(b). He granted relief to the partners accordingly.

The revenue went up to the Tribunal, which affirmed the view taken by the AAC. It relied on a decision of this court in Sri Ram Mahadeo Prasad v. CIT [1953] 24 ITR 176.

3. AT the instance of the Commissioner of Income-tax, the Tribunal has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that only the