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Section 40(b) of the income-tax act, 1961-Business disallowance-Interest, salary, etc., paid to partners in case of a firm-Whether assessee-firm's claim for assessment year 1970-71 for deduction of interest paid by firm to partner, who is partner in representative capacity as karta of his huf, is admissible deduction on the ground that payment was made to such partner in his individual capacity and provisions of section 40(b) would not be attracted-Held, no. Facts During the assessment year 1970-71, the assessee-firm paid interest to two of its partners, who were partners in their representative capacity as kartas of their respective HUFs. The assessee's claim for deduction of the interest so paid was disallowed by the ITO. On appeal, the AAC confirmed the ITO's order. On further appeal, the Tribunal allowed the deduction by holding that section 40(6) did not apply to the present case, as the interest had been paid to the two partners in their individual capacity. On reference : Held Payment to a person who is a partner, is the only criterion for the purpose of section 40(b) which prohibits in absolute terms any allowance in respect of any payment by way of interest, etc., made by the firm to any of its partners and does not make any distinction in respect of the character of the capacity in which the payment is made to the partner. Thus, section 40(b) did apply to the present case, even if the two partners had deposited their individual money in the firm, and the Tribunal was not correct in holding the contrary view. Case review CIT v. London Machinery Co. [1979] 117 ITR 111 (All) followed. IT REFERENCE NO. 174 OF 1977. Case Referred to CIT v. London Machinery Co. [1979] 117 ITR 111 (All.). JUDGMENT OJHA, J.- During the assessment year in question, namely, 1970-71, the assessee respondent, which is a registered firm, had 5 partners including Shri J.P. Bhartiya and Shri G.L. Bhartiya. These two persons were partners in their representative capacity as the karta of their respective HUFs. During the said assessment year, the partnership had paid interest to the aforesaid two persons in the sum of Rs. 18,585 and Rs. 12,372, respectively. The assessee claimed…

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