Law:

Section:

Section 40(b), read with section 67(1)(b), of the Income-tax Act, 1961 - Amounts not deductible - Interest, salary, etc., paid to partners in case of a firm - S was partner in assessee-firm as karta of his HUF - His share income from firm was assessed in HUF's hands - Firm paid salary, interest and bonus to S which were assessed in hands of S as an individual - Whether payments made to S allowable as deduction in computing assessee-firm's income - Held, on facts, no FACTS S was a partner in the assessee-firm in his capacity as karta of his HUF and the income of the firm which fell to his share was assessed in the hands of the HUF. During the accounting years relevant for the assessment years 1966-67 to 1968-69, the assessee-firm paid to S certain amounts by way of salary, bonus and interest on deposits. The amounts were assessed as his individual income. The assessee claimed that the salary, interest and bonus paid to S were allowable as revenue expenditure. The ITO disallowed the claim by applying the provisions of section 40(b), which was upheld both by the AAC and the Tribunal. On reference, the assessee contended that the provisions of section 10(4)( b), read with section 16(1)(b) of the 1922 Act or section 40(b), read with section 67(1)(b) of the 1961 Act were complementary to each other and that having regard to the identity of language in the two provisions, the disallowance under section 10(4)(b) of the 1922 Act should be restricted to cases where the payments by the firm to a partner as well as the share income of that partner from the firm were taxable in the hands of that partner in his individual capacity. HELD The matter stood concluded by the of this Court in the case of K.C. Raj & Co. v. CIT[1980] 121 ITR 911 wherein it was held that section 10(4)(b) of the 1922 Act, corresponding to section 40(b) of the 1961 Act, placed an absolute prohibition against the allowance of expenditure in the nature of interest, salary or commission paid by the firm to any partner and that it did not make the slightest difference whether the partner concerned was a partner in his individual capacity or in his representative capacity and whether the amount paid to…

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