TMI Blog1984 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(b) of the Income-tax Act, 1961 ? " The partners in the assessee-firm were " kartas " representing their respective Hindu undivided families. The assessee-firm paid a sum of Rs. 16,124 as interest to the account of the Hindu undivided families. Before the Income-tax Officer, the assessee-firm claimed that the interest so paid to the Hindu undivided families should be allowed as deduction and section 40(b) of the Income-tax Act, 1961, is no bar for such a claim. The Income-tax Officer did not agree with the contention. He observed that for purposes of section 40(b) of the Income-tax Act, 1961, whether the partner received the interest in his individual capacity or in the capacity of the " karta " of the Hindu undivided family, is not a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal and the amounts transferred on October 14, 1970, to the family were, in fact, the capital of the firm contributed by these seven partners and not the amount lent by the family to the firm." The Tribunal further observed: " Transferring the amount from capital account of the partners to the family was a mere device to escape the provision of section 40(b). Therefore, interest had rightly been disallowed by the Income-tax Officer." The scope of section 40(b) of the Income-tax Act, 1961, has been considered by this court in CIT v. Khoday Eswarsa Sons [1985] 152 ITR 423 (I.T.R.C. No. 253 of 1979, decided on September 13, 1984). There this court observed (page 424): " The scope of this section is no longer in dispute. It imposes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Mr. Prasad also relied upon the Board's Circular (Notification No. 997), dated August 11, 1976. Before considering the said Circular, we may state at the outset there is no basis for presuming that the interest credited to the family account was towards the loan advanced by the Hindu undivided families. The seven partners in question were representing their respective Hindu undivided families. All the partners agreed that the amounts standing in their capital account should be transferred to the family account and also the profits which they were entitled to. So such amount was transferred from one account to another. The Tribunal has observed that transferring the amount from capital account of the partners to their family account w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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