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TMI Blog1980 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity as individuals whereas they were partners in the firm representing their HUF. The ITO held that any payment of interest to the partners has to be disallowed under s. 40(b). This view was confirmed on appeal by the AAC and by the Tribunal on further appeal. At the instance of the assessee, the following question has been referred : "Whether, on the facts and in the circumstances of the case, the disallowance of interest of a sum of Rs. 12,750 under section 40(b) of the Income-tax Act, 1961, paid by the assessee to M/s. Shiv Bhagwan Goenka and Omprakash Goenka despite the fact that they represent their respective Hindu undivided families in the partnership is valid in law ? " The learned counsel for the assessee strenuously contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may be a trustee ; he may enter into a sub-partnership with others; he may, under an agreement, express or implied, be the representative of a group of persons; he may be benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity ; qua the third parties, in his representative capacity." Thus, there could be no doubt that though the karta of an HUF enters into a partnership with others, the karta in his personal capacity alone is the partner. Any payment made to the partner by way of interest is, therefore, clearly governed by s. 40(b). A similar view was also taken by the Allahabad High Court in CIT v. London Machinery Co. [1979] 117 ITR 111. But the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HUF account was not disputed and the dispute related only to the amount credited to the account, Terla Veeraiah's individual account, representing the interest payable to Parasuramulu. It was contended on behalf of the department that since subsequent to the death of Parasuramulu, Veeraiah was continued as partner and the interest was paid to Veeraiah, it was also governed by s. 40(b). That was rejected by the Andhra Pradesh High Court holding that the amount received by Veeraiah was not in his capacity as karta representing the HUF in which capacity alone he was partner, but it was received by him as a legal representative of the deceased, Parasuramulu. The decision, therefore, is based on the fact that the interest in dispute was payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a separate person and creditor and the interest was paid. That decision also, therefore, is not applicable to the facts of the instant, case. The decision in CIT v. Sanka Sankaraiah [1978] 113 ITR 313 (AP), referred to by the learned counsel for the assessee related to the assessment of an HUF under s. 64. The Andhra Pradesh High Court held that unless the assessee is an individual, s. 64 could not be applied. That decision has no application to the facts in this case.
The payment of interest to the said two partners were, therefore, rightly disallowed under s. 40(b). The question is accordingly answered in the affirmative and against the assessee. The revenue will be entitled to its costs. Counsel's fee Rs. 500. X X X X Extracts X X X X X X X X Extracts X X X X
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