Setoff of interest income against interest expense

Hi All,

Can you please elaborate if interest paid on borrowed funds can be treated as an expense to reduce income earned in the form of Interest on Partner's Capital, while calculating the Total Taxable Income??

The borrowed funds in this case were invested as Partner's Loan in a Partnership firm from which income is being received. Normally this would be included in the Income of the Partner receiving Interest on Partner's Loan. However, if the ROI of borrowed funds and that of Partner's Loan is the same, can it result in Interest Liability offsetting Interest Income so that there is no taxable income in such a case??

Thanks!!