COMMISSIONER OF INCOME TAX Vs. KISHANLAL

JUDGEMENT

(1.) THIS reference under section 256(1) of the Income -tax Act, 1961, is at the instance of the Revenue, to answer the following question of law :

(2.) THE relevant assessment year is 1978 -79. One Kishanlal was a partner in his individual capacity in the assessee firm, Kishanlal and Bros., Kota. There were two accounts in the assessee -firm, one for the said Kishanlal as a partner in his individual capacity and the other for the Hindu undivided family represented by Kishanlal in his representative capacity. Interest was paid by the assessee -firm during the relevant period to both these accounts. We are here concerned with the disallowance of interest under section 40(b), which was paid to the Hindu undivided family represented by Kishanlal and not with the amount of interest which was paid to Kishanlal as an individual, in which capacity alone he was a partner in the assessee -firm. The Tribunal has held that the interest paid to the Hindu undivided family represented by Kishanlal as a karta is not hit by the prohibition contained in section 40(b) of the Act, inasmuch as Kishanlal was a partner in the assessee -firm only in his individual capacity and not in his representative capacity as karta of the Hindu undivided family. Aggrieved by this view taken by the Tribunal, the Revenue has come up by reference under section 256(1) of the Act to this court.

(3.) CONSEQUENTLY the reference is answered in the affirmative, against the Revenue and in favour of the assessee by holding that the Tribunals view is justified. No costs.