Section 40(b) disallowance not attracted where karta earned interest on advances to firm, following prior ruling.

Where a Hindu undivided family was a partner in a firm and the karta, in his individual capacity, received interest on amounts advanced to the firm, the Orissa High Court applied its earlier ruling in the assessee's own case and held that section 40(b) of the Income-tax Act, 1961 was not attracted. The Court followed the prior view for the relevant assessment year and answered the reference in the negative, treating the interest as outside the disallowance framework of section 40(b) on the facts considered.

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Issues: Whether section 40(b) of the Income-tax Act, 1961 was attracted where a Hindu undivided family was a partner in the firm and the karta, in his individual capacity, received interest on amounts advanced to the firm.

Analysis: The assessment year in question was 1981-82. The issue was covered by an earlier decision of the same Court in the assessee's own case for an earlier assessment year, where it was held that section 40(b) was not attracted in such circumstances. Following that decision, the Court applied the same view to the present reference.

Conclusion: Section 40(b) was held not to be attracted, and the question was answered in the negative in favour of the assessee and against the Revenue.

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