JUDGMENT
1. At the instance of the Commissioner of Income-tax, Meerut, the Income-tax Appellate Tribunal, New Delhi, has in compliance with the direction of this court in ITA No. 162 of 1980 under Section 256(2) of the Income-tax Act, 1961, referred the following questions for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the disallowance of the sum of Rs. 12,244 being payment of interest to Mahindra Kumar Sewati Devi could not be made under Section 40(b) of the Income-tax Act, 1961 ?"
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the disallowance of a sum of Rs. 5,322 being payment of interest to Shyam Lal Surender Kumar could not be made under Section 40(b) of the Income-tax Act, 1961 ?"
2. The said questions are stated to arise out of the Tribunal's order dated March 30, 1979, passed in ITA No. 3591/Delhi of 1977-78 for the assessment year 1973-74.
3. We have heard Sri A. N. Mahajan, learned standing counsel for the Commissioner. No one has appeared on behalf of the respondent.
4. The facts of the case as stated in the Tribunal's order are that the asses-see is a firm consisting of three partners, namely, S/Shri Mahindra Kumar, Shyam Lal and Smt. Sewati Devi. Smt. Sewati Devi is the mother and Shyam Lal and Mahindra Kumar are her sons. Shri Mahindra Kumar was a partner in the assessee-firm as a karta of his Hindu undivided family styled as Mahindra Kumar Sewati Devi. Similarly, Shri Shyam Lal joined as a partner as karta of his smaller-Hindu undivided family. They had originally formed a bigger-Hindu undivided family consisting of all the three members. The bigger-Hindu undivided family had a capital of Rs. 2,10,000. There was a partition on November 30, 1970, as a result of which the Hindu undivided family of Shri Shyam Lal got Rs. 70,000 and the Hindu undivided family of Mahindra Kumar Sewati Devi Rs. 1,40,000. That amount was deposited by both the Hindu undivided families with the assessee-firm when their kartas became partners. The firm paid interest of Rs. 14,724 to the Hindu undivided family of Mahindra Kumar Sewati Devi through the karta Shri Mahindra Kumar for the assessment year 1972-73. In the original assessment, the claim for deduction of this interest was allowed. However, subsequently, the Income-tax Officer reopened the assessment under Section 147 and disallowed the claim in view of the provisions of Section 40(b) of the Act. In the assessment year 1973-74, on a similar ground the assessee's claim for payment of interest of Rs. 12,244 to Mahindra Kumar Sewati Devi was disallowed under Section 40(b).
5. Under Section 40(b)(iv) interest paid to a partner of the firm is not allowable as an expenditure. In the present case, the Hindu undivided families styled as Mahindra Kumar Sewati Devi and Shyam Lal Surender Kumar were partners in the assessee-firm, Goverdhan Dass Mahendra Kumar in the capacity as karta of the respective Hindu undivided family. The amounts which they deposited with the assessee-firm also belonged to those Hindu undivided families and interest was paid to the Hindu undivided families. The Assessing' Officer had, therefore, disallowed the interest by invoking the provisions of Section 40(b). On appeal, the Appellate Assistant Commissioner had deleted the addition which has been affirmed by the Tribunal.
6. According to the facts found by the Tribunal, the Hindu undivided family named above were partners in the firm through their respective kartas and the same Hindu undivided families were the depositors of money on which interest was paid. Therefore, Section 40(b) was clearly attracted to the facts of the case and the Tribunal was wrong in deleting the disallowance of interest paid to the partners, i.e., Hindu undivided families in question. We find support from an observation of the Supreme Court in Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825. The identity of the partners and the persons receiving the interest being the same, the Assessing Officer had rightly invoked Section 40(b) and the Tribunal's order upholding the order passed by the Appellate Assistant Commissioner is untenable. We, therefore, answer the reference in the negative and hold that the disallowance of Rs. 12,244 and Rs. 5,322 on account of payment of interest to Mahindra Kumar Sewati Devi and Shyam Lal Surender Kumar, respectively, was right.