Deductibility of interest paid to a partner's HUF upheld where payment was not treated as made to the partner individually.

Interest credited to a partner's Hindu undivided family, rather than to the partner personally, was treated as payment to a separate entity and not as payment to a partner of the firm. Applying an earlier Division Bench distinction between a partner in an individual capacity and the firm or HUF associated with him, the Rajasthan High Court noted that such interest did not fall outside deductibility on that ground. The interest was therefore allowable as a deduction to the firm under the Income-tax Act, 1961, and the issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether interest credited to the Hindu undivided family of a partner, instead of to the partner individually, was allowable as a deduction to the firm under the Income-tax Act, 1961.

Analysis: The controversy was held to be covered by an earlier Division Bench decision which drew a distinction between a partner in his individual capacity and the firm or Hindu undivided family associated with him. On that basis, payment of interest to the Hindu undivided family was treated as not amounting to payment to a partner of the firm.

Conclusion: The interest was allowable, and the question was answered in favour of the assessee and against the Revenue.

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