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Issues:
Interpretation of section 40(b) of the Income-tax Act, 1961 regarding disallowance of interest and commission paid to a partner of a firm representing his Hindu undivided family. Analysis: The issue in this case revolves around the interpretation of section 40(b) of the Income-tax Act, 1961, concerning the disallowance of interest and commission paid to a partner of a firm representing his Hindu undivided family. The Income-tax Officer disallowed the commission and interest paid to a partner under this section, stating that the prohibition is absolute and does not differentiate between payments made to a partner as a partner or in a different capacity. The Commissioner of Income-tax (Appeals) upheld this decision, citing previous High Court judgments that clarified payments to a partner in his individual capacity are covered by section 40(b). However, the Income-tax Appellate Tribunal disagreed, referencing a decision by the High Court that payments made to a partner representing his Hindu undivided family are not disallowed under section 40(b). The Tribunal's decision was based on a Supreme Court ruling in Suwalal Anandilal Jain v. CIT, which held that interest paid to a partner representing his Hindu undivided family is deductible in computing the firm's income. Therefore, the Tribunal concluded that the interest paid to the partner in his capacity as a representative of the Hindu undivided family should not be disallowed under section 40(b). However, a separate issue arose regarding the commission paid to the partner in the same capacity. The Tribunal noted a Supreme Court decision in Rashik Lal and Co. v. CIT, which concluded that commission paid to a partner representing his Hindu undivided family is not exempt from disallowance under section 40(b). Consequently, the Tribunal ruled in favor of the Revenue regarding the disallowance of commission but in favor of the assessee concerning the interest payment. In conclusion, the court partially favored the assessee and partially the Revenue, based on the distinction between interest and commission payments made to a partner representing his Hindu undivided family, as interpreted under section 40(b) of the Income-tax Act, 1961.
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