1980 (2) TMI 109

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....f interest paid to Sri Madhusudan Agarwalla in different capacity than the capacity in which he was a partner as a debatable point. (ii)... The CIT (A) has erred in confirming the order of the ITO when M/s Madhusudan Mahendra Kumar of which Sri Madhusudan Agarwalla was the Karta was a partner in the firm and Sri Madhusudan Agarwalla was not a partner in his individual capacity when interest was paid on his individual loan account.  While making the assessments of the assessee firm the ITO disallowed interest paid to Sri Madhusudan Agarwalla-representing the HUF. But interest paid to Sri Madhusudan Agarwalla on his individual account was allowed. Subsequently, the ITO found that according to the provisions of s. 40(b) of the IT Act, ....

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....unt of Verraiah as a partner of the firm, s. 40(b) has no application and the orders of the Appl. Tribunal in so far as upholding the disallowance of interest under s. 40(b) is not correct. The Allahabad High Court in Madho Prasad, Pilibhit vs. CIT (2) had held that where the Karta of an HUF enters into a partnership with others, as far as his relation to the firm and his rights and obligations in regard to the other partners are concerned he is a partner only as an individual, though his joint family is entitled to get from him his share in the profits of the firm and the joint family is liable for his share of losses in the firm. The joint family, as such, does not become a partner nor will other members of the family become partners of t....