TaxTMI 
TaxTMI 
1981 (7) TMI 110
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....ge, Patiala. hereinafter referred to as the AAC, in respect of the assessment framed under s. 143(3) of the IT Act, 1961, hereinafter referred to as the Act, for the asst. yrs. 1975-76 and 1976-77. In the first year, there are two contentions, one that the AAC was not justified in upholding the ITOs' order adding in the firm's assessment sum of Rs. 8,718 on account of interest paid/credited to the....
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....sition that these persons were partners in the firm in their individual capacity. The ITO disallowed the interest paid to the HUFs of the partners for the two years, as stated above, on the ground that it was hit by the provisions of s. 40(b) of the Act. The interest payment to the HUFs of the partners, the additions of which are disputed, are as follows: .. Asst. year Amount Madan Lal....
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.... disallowance, we have come across similar cases and have taken a consistent approach that when Karta of a HUF is a partner in a firm and has also an individual amount with the firm, interest paid on that account is to be considered as paid to the partner because in the constitution of the firm he has to be considered as a partner as his representative capacity is to be ignored so far as the firm ....
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....he Act. It was further held that in order to disallow a payment of interest by the firm under s. 40(b) of the Act, the test to be applied as to whether the interest is paid to a partner. If the creditor of the firm is not the partner but the HUF of which the partner is the 'Karta', then the creditor of the firm is a separate entity and interest paid to that separate entity will not be governed by ....