TaxTMI 
TaxTMI 
1984 (8) TMI 20
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....uryaprakash and Sons Family Account, D. Suryaprakash & Sons Family Loan Account for the assessment years 1972-73 and 1973-74, respectively, is not disallowable under section 40(b) of the Income-tax Act, 1961 ? " The assessee is a firm carrying on business in cloth and silk. The partners of the firm are members of the erstwhile Hindu undivided family which carried on the very same business under the name and style of " M/s. Dasa N. Govindaiah Setty & Sons, Hindupur ". The interest credited to the accounts of the partners was being added back in computing the total income of the assessee under section 40(b) of the Income-tax Act, 1961, on the ground that the interest was paid to the partners. One of the partners was Sri D. Suryaprakash. The ....
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....g in the accounts of two more partners, i.e., " Dasa N. Govindaiah Setty and Dasa Ravindranath ", to new accounts called " Dasa N. Govindaiah Setty and his family account " and " Dasa Ravindranath and his family account " and claimed deduction of payment of interest credited to the said accounts under section 40(b) of the Act. The Income-tax Officer as usual rejected the claim. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. When the assessee preferred appeals before the Tribunal for all the four assessment years, the Tribunal, by its order dated July 20, 1974, held that though the partners of the firm were representing their respective joint families, in the eye of law, the joint families wer....
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....o the partners but to the respective joint families represented by them. Under section 40(b) of the Act, payment of interest to any partner of the firm is not liable to be deducted. Inasmuch as interest was paid by the firm to the joint families represented by the partners, there being no obligation on them to invest any capital, section 40(b) of the Income-tax Act is no bar and the firm is entitled to deduct the amounts of interest so paid, from its total income. In Addl. CIT v. Vallamkonda Chinna Balaiah Chetty & Co. [1977] 106 ITR 556 (AP), a firm consisting of four partners with equal shares, was the assessee. Ramachandraiah (R) was one of them representing his Hindu undivided family. In the deed of partnership, there was no stipulatio....