(1.) In this reference under Section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), for the assessment year 1984-85, the following questions of law have been referred to this court:
(2.) Whether, having regard to the fact that the three Explanations inserted by the Taxation Laws (Amendment) Act, 1984, were with effect from April 1, 1985, the Tribunal was justified in law in holding that they were only clarificatory in nature and must govern assessments prior to the assessment year 1985-86 and in that view directing to delete the add back of interest paid to the partners in their individual, capacity as they represented their Hindu undivided family in the firm ?"
(3.) The assessee challenged the above disallowance in appeal before the Commissioner of Income-tax (Appeals) and contended that interest paid to Shri B.P. Kedia and Shri K.P. Kedia could not be disallowed under Section 40(b) as interest was paid to them as individuals, whereas they were partners in the assessee-firm as kartas of the respective Hindu undivided families. The assessee further relied upon Explanation 2 to Section 40(b) inserted with effect from April 1, 1985.