Law: Income Tax Act, 1961

Section: 256

Income-tax----Firm---Karta of Hindu undivided family partner in firm in his representative capacity ---Karta lending money to firm in his individual capacity---Interest paid by firm to Karta is deductible in computing firm's income. If a person is a partner in a firm in a representative capacity, e.g., a Karta of a Hindu undivided family becoming a partner in a firm representing a Hindu undivided family, and if such partner lends to the firm moneys belonging to him individually, then the interest paid by the firm to such partner on the moneys lent by him is deductible in computing the firm's income. C.I.T. v. Narbharam Popatbhai and Sons (1987) 166 ITR 534 M P fol. JUDGMENT G.G. SOHANI, ACTG. C. J.--By this reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion: "Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was legally correct in holding that the interest amount of Rs. 10,650 paid by the assessee-firm to Shri Umraomal, in his individual capacity, was liable to be disallowed in the hands of the firm under section 40(b) of the Income-tax Act, 1961?" The material facts giving rise to this reference, briefly, are as follows: The assessee is a registered firm and the assessment year in question is 1978-79. One Shri Umraomal was a partner of the assessee-firm as representative of his Hindu undivided family, Umraomal Kasturchand. A sum of Rs.10,650 was paid by the assessee-firm as interest to Shri Umraomal on the amount lent by Umraomal to the assessee-firm in his individual capacity. The Income-tax Officer, while framing the assessment, held that the interest amount of Rs. 10,650 paid to Shri Umraomal in his individual…

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