Interest paid to a partner representing an HUF as karta is not disallowable under section 40(b) when paid to the individual partner.

Interest paid by a firm to an individual partner was not disallowable under section 40(b) merely because the partner represented a Hindu Undivided Family as karta in the partnership. The Allahabad HC followed its earlier ruling on the same issue and treated the payment as interest to an individual partner, not as a payment attracting disallowance on the ground of HUF representation. The addition to the assessee's income was therefore rejected and the question was answered in favour of the assessee.

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Issues: Whether interest paid by a firm to the individual partner, who was acting as karta of a Hindu Undivided Family, was liable to be added to the assessee's income under section 40(b) of the Income-tax Act, 1961.

Analysis: The question referred arose from the treatment of interest paid by the firm to the credit of the loan account of the partner who represented the Hindu Undivided Family as karta. The Court followed its earlier decision on the same issue and held that interest paid by the firm to the individual partner, even though he represented the Hindu Undivided Family in the partnership, could not be disallowed under section 40(b).

Conclusion: The interest was not liable to be added to the assessee's income and the question was answered in the negative, in favour of the assessee and against the revenue.

Ratio Decidendi: Interest paid by a firm to an individual partner is not disallowable under section 40(b) merely because that partner represents a Hindu Undivided Family as karta in the partnership.

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