TMI Blog1979 (10) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... , has referred the following question for our opinion: " Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 35,000 gifted by Smt. Prakash Kaur to the HUF is not a valid gift in the eye of Hindu law and as such the interest of Rs. 5,250 paid in regard to the said amount by the assessee-firm to the HUF was not allowable? " The refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000. The case of Smt. Prakash Kaur, who was one of the partners of the assessee-firm, was that the amount of Rs. 35,000 was gifted by her to the HUF. The amount of interest payable on Rs. 35,000 amounted to Rs. 5,250. The ITO added back this amount on the ground that Smt. Prakash Kaur being a female, could not blend her individual property with that of the HUF, and further that she could not make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner. Section 40(b) of the I.T. Act, 1961, prohibits payment 159 of interest to a partner of the firm. Such payments have to be added back to the income of the firm. But inasmuch as the creditor of the firm was the HUF and not Smt. Prakash Kaur, the interest that was paid on this amount of Rs. 35,000 was paid to the HUF and not to Smt. Prakash Kaur. It is not disputed that the HUF was not a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that inasmuch as the kartas were partners of the firm, the fact that they had deposited their individual funds in the accounts of the firm would not mitigate against the applicability of s. 40(b), because for the purposes of the firm their capacity as kartas of HUF was immaterial, and as interest was paid to them on deposits made by them the amount paid would come within the mischief of s. 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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