Interest paid to partners' Hindu undivided family accounts fell outside section 40(b) disallowance under settled High Court precedent.

Interest paid to the Hindu undivided family accounts of partners was held not to attract disallowance under section 40(b) of the Income-tax Act, 1961, because the point was governed by the Court's Full Bench ruling in CIT v. Narbharam Popatbhai and Sons, which treated such payments as outside the scope of that disallowance provision. The Tribunal's contrary view was therefore unsustainable, and the question referred was answered in favour of the assessee.

---

---

Issues: Whether interest paid to the Hindu undivided family accounts of the partners of a firm was liable to be disallowed under section 40(b) of the Income-tax Act, 1961.

Analysis: The assessment years involved were 1981-82 and 1982-83. The Revenue accepted that the question was governed by the Full Bench decision of the Court in CIT v. Narbharam Popatbhai and Sons, which held the relevant disallowance provision inapplicable to such interest payments. On that basis, the Tribunal's view could not be sustained.

Conclusion: The answer to the referred question is in the negative. The Tribunal was not right in holding that the interest paid to the Hindu undivided families of the partners was liable to be disallowed under section 40(b) of the Income-tax Act, 1961, and the decision is in favour of the assessee.

---