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TMI Blog1974 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,774 and Rs. 9,521 credited to the accounts of (1) K. K. Anandaiah and Sons family and K. N. Krishnamurthy Sons family, respectively, cannot be disallowed under section 40(b) of the Income-tax Act, 1961 ? " The assessee is a registered firm consisting of three partners and it carried on wholesale business in cloth. Among the three partners, the first two named in the deed, viz., K. N. Anandaiah and K. N. Krishnamurthy, are kartas of their respective Hindu undivided families. They were partners of the firm on behalf of their respective families. In the accounting year of the firm ending on March 31, 1966, there was only one account each in the names of K. N. Anandaiah and K. N. Krishnamurthy. Those accounts were credited with interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the amounts paid by the farm as interest on the amount due to a Hindu joint family which is represented by its karta in the firm is a payment of interest to the partner of the firm within the meaning of section 40(b) of the Act, and hence not deductible in computing the profits and gains of the firm's business. Mr. Dasaratharama Reddy, the learned counsel appearing for the assessee, contended that that decision is distinguishable on facts, and that the amounts paid by way of interest is not to the individual partners but to the Hindu joint families of which they were members. What amounts are not deductible are stated in section 40. Section 40(b) says : " Notwithstanding anything to the contrary in sections 30 to 39, the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the individual accounts of these two partners the shares of profit are further transferred to the accounts of their respective joint Hindu families." It would, therefore, appear that what was first credited to the accounts in the names of K. N. Anandaiah and K. N. Krishnamurthy were later transferred to the accounts of their respective Hindu undivided families. There is also the further fact that not only the interest credited to their individual accounts was transferred to the accounts of the respective Hindu undivided families, but also the profits of the firm first credited to their individual accounts were also transferred to the accounts of the respective Hindu undivided families. The facts of the case in Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the account of the Hindu undivided family of Venkataratnam. In these cases too, the same device has been adopted by the assessee. The interest was first credited to the personal accounts of the assessees and later transferred to the accounts of the Hindu undivided families. The learned judges in that case held that : " By the mere trick of opening two accounts, one in the name of the joint family of K.Venkataratnam and another in the name of K.Venkataratnam as a partner, and transferring the capital investment to the joint family account, it cannot be contended that what was once capital has become now the investment made by the joint family." If really the Hindu undivided families were creditors to the firm there was no reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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