Partner payments disallowed under section 40(b) where salary and interest were paid to a partner in the firm

Salary and interest paid to an individual were held to be disallowable because the recipient was a partner in the partnership arrangement, bringing the payments within the statutory bar in section 40(b). The argument that the amounts were paid in a personal capacity was rejected, and authorities concerning Hindu undivided families or other distinguishable situations were held inapplicable. The Tribunal relied on contrary High Court and Special Bench decisions, as well as its own earlier ruling on the same point, and concluded that the partner's status controlled the deduction question. The assessee therefore failed on the issue.

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Issues: Whether salary and interest paid to an individual, who was the partner in the partnership arrangement, were disallowable under section 40(b) of the Income-tax Act.

Analysis: The claim that the payments were made to the individual in his personal capacity was rejected. The Tribunal held that section 40(b) governs payments made to a partner of a firm, and the cited authorities relating to a Hindu undivided family or other distinguishable situations did not assist the assessee. Relying on contrary High Court and Special Bench decisions, and following its own earlier order on the same point, the Tribunal concluded that the character of the recipient as partner attracted the statutory bar on deduction.

Conclusion: The salary and interest were correctly disallowed under section 40(b), and the assessee failed on the issue.

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