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Section 40(b) of the Income-tax Act, 1961 - Amounts not deductible - Interest, salary, etc., paid to partners in case of a firm - G was partner in assessee-firm in individual capacity and interest was paid to him as karta of his HUF - Wheather since G was partner in firm, whatever may be his capacity, interest paid to him was not allowable in view of section 40(b) - Held, yes FACTS The assessee-firm consisted of five partners. G, who was one of the partners, was karta of a HUF but he was partner in his individual capacity. The HUF of G had advanced loans to the firm on which the firm paid interest. Thus interest was paid to G on behalf of HUF. While completing the assessment of the assessee-firm, the ITO disallowed interest so paid on the ground that interest to partners was not allowable in view of section 40(b). The Commissioner (Appeals), however, allowed the payment. On second appeal, the Tribunal, however, held that irrespective of the capacity in which the partners got interest, the same was not allowable as deduction in view of the absolute bar envisaged in section 40(b). On reference : HELD Irrespective of the capacity in which a person joins a partnership firm and is paid interest by the firm, section 40(b) is a bar to payment of interest to the partner of the firm. In the instant case, partner G had joined the firm in his individual capacity and interest was paid to him as karta of his HUF. In fact interest was paid to G who was a partner of the assessee-firm and, therefore, whatever may be his capacity, payment of interest to him would not be allowable in view of section 40(b ). CASE REVIEW CIT v. T. Veeraiah and K. Narasimhulu [1977] 106 ITR 283 (AP.), CIT v. London Machinery Co .[1979] 117 ITR 111 (All.) and Addl. CIT v. K.G. Narayanaiah Chetty and Co. [1977] 106 ITR 420 (AP.)followed & relied upon. CIT v. K. Krishnaiah Chetty and Sons [1981] 131 ITR 410 (AP.), CIT v. Sajjanraj Divanchand[1980] 126 ITR 654 (Guj.), Addl. CIT v. Vallamkonda Chinna Balaih Chetty and Co. [1977] 106 ITR 556 (AP.) and Terla Veeraiah v. CIT [1979] 120 ITR 501 (AP.) dissented. CASES REFERRED TO CIT v. T. Veeraiah and K. Narasimhulu [1977] 106 ITR 283 (AP.), CIT v.…

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