A. P. RAVANI, B. S. KAPADIA, P. S. POTI, J. ( 1 ) THIS is a reference of the assessee a Registered Firm and relates to the assessment years 1970-71 and 1971-72; the corresponding accounting years being that ending on 30-6-1969 and 25 One Shri C. S. Virani was a partner of the applicant firm and he joined the partnership representing the Hindu Undivided Family of which he was the Karta. For the two accounting years in question Shri C. S. Virani maintained also accounts with the partnership one his own individual account and the other of the Hindu Undivided Family which he represented as Karta. The firm paid interest on advances made other than the capital by the Hindu Undivided Family represented by Shri C. S. Virani and also advance made by Shri Virani from his own personal account. The interest so paid on individual funds for the assessment year 1970-71 was Rs. 1 30 594 and interest paid on account of the Hindu Undivided Family was the sum of Rs. 26 482 These payments were disallowed by the Income-tax Officer who relied on sec. 40 (b) of the Income-tax Act 1961 for adopting such a course. Similar interest paid during assessment year 1971- 72 was disallowed that being a sum of Rs. 1 37 606 paid on Shri C. S. Viranis personal account and a sum of Rs. 13 929 paid on Hindu Undivided Family account. ( 2 ) THE assessee took up the matter of assessments in appeal be- fore the Appellate Assistant Commissioner of Income-tax but the claim in regard to dis-allowance of interest paid on account of the Hindu Undivided Family was given up ill appeal. The Appellate Assisthat Commissioner rejected the claim of the assessee in regard to the disallowance of interest paid on the individual account held by Shri C. S. Virani and this was confirmed by the income-tax Appellate Tribunal in further appeal. ( 3 ) THE question that was referred so this Court in the background of these facts is whether the Tribunal was justified in law in confirming disallowance of Rs. 1 30 594 for the assessment year 1970-71 and Rs. 1 37 606 for the assessment year 1971-72 being interest paid to Shri C. S. Virani individual under sec. 40 (b) of the Income-tax Act 1961 ? 1 30 594 for the assessment year 1970-71 and Rs. 1 37 606 for the assessment year 1971-72 being interest paid to Shri C. S. Virani individual under sec. 40 (b) of the Income-tax Act 1961 ? ( 4 ) WHEN the reference came up before a Division Bench of this Court it was felt that the decision of this Court in COMMISSIONER OF INCOME TAX V. SAJJANRAJ DIVANCHAND 126 ITR 654 required reconsideration and therefore reference was made to a larger Beach. That is how the case is now before a Full Bench. ( 5 ) NOW we may refer to the provisions of the Income-tax Act which may have relevance in deciding the question in controversy before us. Secs. 30 to 39 of the Income-tax Act 1961 provide for various allowances and deductions to be made in computing the income chargeable under the head profits and gains of business or profession. Though generally these deductions are to be made for the purpose of determining the net income of any assessee sec. 40 envisages situations where some of the deductions are not to be made and some are to be made in a modified manner in the case of certain classes of assesses. Sub-sec. (a) deals with the case of any assessee sub-sec. (b) deals with the case of any firm sub-sec. (c) deals with the case of any company. and sub-sec. (d) deals with the case of a banking company. We are concerned for the purpose of this case only with sec. 40 (b ). That reads:notwithstanding anything to the contrary in secs. 30 to 39 the following amounts shall not be deducted in computing the income chargeable under the bead 4 profits and gains of business or profession. -. . . . . . . . . . . . . . . . . . . . . . . . (b) in the case of any firm any payment of interest salary bonus commission or remuneration made by the firm to any partner of the firm. The provision corresponding to this in the Income-tax Act 1922 is sec. 10 (4) (b) and the only difference between that section and sec. 40 (b) of the Income-tax Act 1961 is that in the section as it stands besides interest salary commission or remuneration bonus is also referred to. It may be noticed that sec. The provision corresponding to this in the Income-tax Act 1922 is sec. 10 (4) (b) and the only difference between that section and sec. 40 (b) of the Income-tax Act 1961 is that in the section as it stands besides interest salary commission or remuneration bonus is also referred to. It may be noticed that sec. 10 (4) (b) was brought into the 1922 Act by the amendment effected in 1939 and the legislative history is sufficient to indicate that the provisions in sub. 40 are intended to prevent siphoning off the profits in some form or other so as to reduce the tax liability and in the case of a firm that siphoning off is envisaged by payment to a partner of a portion of the profit in one form or another as envisaged in the section viz. by way of interest salary onus commission or remuneration. Evidently that is the reason why though normally any interest paid other than the interest paid on the capital would be an allowable item or expenditure under sec. 37 of the Income -tax Act special provision was made in sec 40 (b) to see that such payment of interest is taken out of the scope of allowable expenditure. Same is the approach towards salary bonus commission or remuneration. ( 6 ) THE case of the assessee after he filed the appeal before the Appellate Assistant Commission has all along been that though payment of interest on the advances made by the Hindu Undivided Family could be disallowed in view of the fact that Shri C. S. Virani was representing the Hindu Undivided Family as partner in the firm there is no justification for dis-allownce of interest payable to him not in the capacity of the Karta of the firm which he represented but on advances made from his own individual funds properly shown as in his individual account. ( 7 ) SEC. 184 of the Income-tax Act 1961 deals with registration of a firm for the purpose of the Income-tax Act. Assessment of registered firms is dealt with in sec. 182 of the said Act and the assessment of unregistered firms is dealt with in sec. 183. It may be profitable here to refer to certain definitions in the Act. A firm a partner and partnership have been defined in sec. Assessment of registered firms is dealt with in sec. 182 of the said Act and the assessment of unregistered firms is dealt with in sec. 183. It may be profitable here to refer to certain definitions in the Act. A firm a partner and partnership have been defined in sec. 2 (23) as having meanings respectively assigned to there in the Indian Partnership Act 1932 (IX of 1932 ). But the expression partner will include also any person who being a minor has been admitted to the benefits of partnership. It may be necessary to notice here that the definition section starts with the preface In this Act unless the context otherwise requires. ( 8 ) WE have already adverted to sec. 182. That section provides that in the case of a registered firm after assessing the total income of the firm the income-tax payable by the firm shall be determined and the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. The Act contempaltes determination of the total income of the firm assessment of the firm on such total income and apportionment of the total income to the partners for the purpose of computing the income of the partners in the assessment of the partners. We may now advert to sec. 67 of the Act. This deals with the method of computing a partners share in the income of the firm. It may not be necessary to refer to the method of computation itself. It will be sufficient to point out that the section lays down the detailed procedure as to how the partners share in the income of the firm is to be reckoned when the partner is assessed. ( 9 ) THE short question that arises for decision in this reference concerns the scope of sec. 40 (b) of the Income-tax Act 1961 to which we have already made a reference. Disallowance contemplated therein of interest is according to the Revenue disallowance of any interest paid to the partner whether in his individual account or in the account of the Hindu Undivided Family which he represents as a partner in the partnership. In justification of this course the Revenue pleads that under the law of partnership a Hindu Undivided Family is never taken to be a partner. In justification of this course the Revenue pleads that under the law of partnership a Hindu Undivided Family is never taken to be a partner. Partnership being a relationship created by contract only the parties to the contract are recognized as partners and that being so irrespective of the capacity in which a partner acts whatever interest is paid to the partner from the firm is according to the revenues to be disallowed invoking sec. 40 (b) of the Income-tax Act 1961 ( 10 ) AS against this the contention of the assessee is that since at the stage sec. 40 (b) of the Act is applied the Income-tax Officer is concerned only with the assessment of the firm and not of the individual partner on his income the disallowance envisaged by the section is only that of payment made to the partner concerned in the capacity in which he is such a partner. It is said that reading otherwise would defeat the very object of the section. It is further said that whatever disability there may be between partners to plead beyond the terms of contract of partnership there is no bar in the Revenue while enforcing the law relating to income-tax from recognizing the reality and dealing with the assessee on the basis of that reality. In other words while as between partners one partner will not be permitted to urge that though he is the partner appearing on the face of the agreement of partnership it is not he who is really a partner but the Hindu Undivided Family which he represents so far as the Revenue is concerned. there is no bar in treating the partner as representing a Hindu Undivided Family and that being the reality ia assessing in accordance therewith. ( 11 ) AS we noticed earlier while all interest payments from the business should normally be treated as revenue expenditure allowable in determining the net income of the assessee the purpose for which sec. 40 (b) operates is evidently to prevent siphoning off by a firm of any of its profits by payment of interest sometimes inflated to its partners and thus reducing the assessable income of the firm. 40 (b) operates is evidently to prevent siphoning off by a firm of any of its profits by payment of interest sometimes inflated to its partners and thus reducing the assessable income of the firm. There will be no objection in paying interest to the creditors in the usual course and that will be permissible expenditure and if a person happens to be a partner in his capacity say as Trustee there is no reason why any interest paid to him in his individual capacity on his individual accurate should not be allowed as an item of revenue expenditure. ( 12 ) IT may be profitable here to refer to certain decisions which may have a bearing in understanding the question of the relationship of partners inter se and the rights of a Hindu Undivided Family represented in a firm by one of its members as against the from. The following passage from Maynes Hindu law 9 Edition at page 398 quoted by the Privy Council in P. K. P. S. PICHAPPA CHETTIAR AND OTHERS V. CHOKALINGAM PILLAI AND OTHERS A. I. R. 1934 P. C. 192 may by reproduced:where a managing member of a joint family enters into a partnership with a stranger the other members of the family do not ipso facto become partners in the business so as to clothe there with all the rights and obligations of a partner as defined by the Indian Contract Act. In such a case the family as a unit does not become a partner but only such of its members as in fact enter into a contractual relation with the stranger: the partnership will be governed by the Act. ( 13 ) THE same passage has been quoted by the Supreme Court in the decision in CHARANDAS HARIDAS AND ANOTHER V. COMMISSIONER OF INCOME-TAX BOMBAY NORTH KUTCH RIND SAURASHTRA AHMEDABAD AND ANOTHER 39 I. T. R. 202 and the Supreme Court goes on to observe:in our opinion here there are three different branches of law to notice. There is the law of partnership which takes no account of a Hindu Undivided Family. There is also the Hindu law which permits a partition of the family and also a partial partition binding upon the family. There is the law of partnership which takes no account of a Hindu Undivided Family. There is also the Hindu law which permits a partition of the family and also a partial partition binding upon the family. There is then the income-tax law under which a particular income may be treated as the income of the Hindu Undivided Family or as the income of the separated members enjoying separate shares by partition. The fact. . . . . Just as the fact of a Karta becoming a partner does not introduce the members of the undivided family into the partnerstip the division of the family does not change the position of the partner vis-a-vis the other partner or partners. The income-tax law before the partition takes note factually of the position of the Karta and assesses not him qua partner but as representing the Hindu Undivided Family. In doing so the Income-tax law looks not to the provisions of the Partnership Act but to the provisions of Hindu law. When once the finally has disrupted the position under the partnership continues as before but the position under the Hindu law changes. There is then no Hindu Undivided Family as a unit of assessment in point of fact and the income which accrues cannot be said to be of a Hindu Undivided Family. ( 14 ) IN the decision in COMMISSIONER OF INCOME-TAX GUJARAT V. A. ABDUL RAHIM AND CO. (1965) 55 I. T. R. 651 the Supreme Court had to consider whether a benamidar can in law be a partner of a firm; the benamidar has no beneficial interest in the property or business that stands in his name. He represents in fact the real owner. Referring to the Madras decision in ARUNA GROUP OF ESTATES BODINAYAKANUR V. STATE OF MADRAS (1965) 55 I. T. R. 642 the Supreme Court expressed the view that the benami character did not affect the benamidars capacity as partner or his final relationship with the other members of the partnership. In this case the Court said:if so what is the principle of law which prohibits the benamidar of a partner from being also a partner along with the said partner with others ? In this case the Court said:if so what is the principle of law which prohibits the benamidar of a partner from being also a partner along with the said partner with others ? Qua the other partners he has separate and real existence; he is governed by the terms of the partnership deed; his rights and liabilities are governed by the terms of the contract and by the provisions of the Partnership Act; his liability to third parties for the acts of the partnership is co-equal with that of the other partners; the other partners have no concern with the real owner; they can only look to him for enforcing their rights or discharging their obligations under the partnership deed. Any internal arrangement between him and another partner is not governed by the terms of the partnership; that arrangement operates only on the profits accruing to the benamidar; it is outside the partnership arrangement. If a benamidar possesses the legal character to enter into a partnership with another the fact that he is accountable for his profits to and has the right to be indemnified for his losses by a third party or even by one of the partners does not disgorge him of the said character. ( 15 ) THE same principle was reiterated by the Supreme Court in COMMISSIONER OF INCOME-TAX MADRAS V. BAGYALAKSHMI and CO. (1965) 55 I. T. R. 660. It may be profitable to extract the following passage from the above judgment:we have held in COMMISSIONER OF INCOME-TAX V. ABDUL RAHIM and CO. (1965) 55 I. T R. 651 that the Income-tax Officer can reject the registration of a firm if it is not genuine or valid and if the application for registration has not complied with the rules made under the Act. Here we have admittedly a genuine partnership. It cannot even be suggested that it is invalid. The only objection is that Guruswamy Naidu and Venkatasubba Naidu have less shares in the partition deed than those shown in the partnership deed. If the distinction between the three concepts is borne in mind much of the confusion disappears. A partnership is a creature of contract. Under Hindu law a joint family is one of states and right to partition is one of its incidents. If the distinction between the three concepts is borne in mind much of the confusion disappears. A partnership is a creature of contract. Under Hindu law a joint family is one of states and right to partition is one of its incidents. The income-tax law gives the Income-tax Officer a power to assess the income of a person in the manner provided by the Act. Except where there is a specific provision of the Income-tax Act which derogates from any other statutory law or personal law the provision will have to be considered in the light of the relevant branches of law. A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the Karta of a Joint Hindu Family; he may be a trustee; he may enter into a sub-partnership with others; he may under an agreement express or implied be the representative of a group of persons; he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership he functions in his personal capacity; qua the third parties in his representative capacity. The third parties whom one of the partners represents cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a share in the profits of their partner representative in accordance with law or in accordance with the terms of the agreement as the case may be. If that be so Guruswamy Naidu could have validly entered into a genuine partnership with others taking a 10 annas share in the business though in fact as between the members of the family he has only a 2 annas share therein. He would have been answerable for the profits pertaining to his share to the divided members of the family but it would not have affected the validity or genuineness of the partnership. So much is conceded by the learned Attorney General. If so we do not see why a different result should flow if instead of one member of the divided family two members thereof under some arrangement between the said members of the family took 10 annas share in the partnership. So much is conceded by the learned Attorney General. If so we do not see why a different result should flow if instead of one member of the divided family two members thereof under some arrangement between the said members of the family took 10 annas share in the partnership. If the conten tion of the revenue was of no avail in the case of representation by a single member it could not also have any validity in the case where two members represented the divided members of the family in the partnership. As the partnership deed was genuine it must be held that the shares given to Guruswamy Naidu and Venkatasubba Naidu in the said partnership are correct in accordance with the terms of the partnership deed. ( 16 ) THE passage from Maynes Hindu Law (9th Edn.) at page 398 which we have extracted earlier was again noticed by the Supreme Court of India in COMMISSIONER OF INCOME-TAX MADHYA PRADESH NAGPUR AND BHANDARA V. SIR HUKUMCHAND MANNALAL AND CO. (1970) 78 I. T. R. 18 and referring to the following passage in RAM LAXMAN SUGAR MILLS V. COMMISSIONER OF INCOME-TAX (1967) 66 I. T. R. 613. ( 17 ) THIS position in law was not disputed on behalf of the Commissioner. But it was urged that since two members of a coparcenary represented in the firm the same beneficial interest of a Hindu undivided family and since they were incometent to enter into a contract inter se the partnership agreement could not be registered. There is no substance in that contention. ( 18 ) SUPREME Court said:it is clearly enunciated that one or more members of Hindu undivided family may enter into a c a contractual relation in the nature of a partnership with a stranger and they qua the stranger become partners. The view expressed by the judicial Committee was approved by this Court in CHARANDAS HARIDAS V. COMMISSIONER OF INCOME-TAX (1960) 39 I. T. R. 202. ( 19 ) THE position therefore is well settled that there is no impediment in a Hindu undivided family becoming a partner of a firm through its representative. The view expressed by the judicial Committee was approved by this Court in CHARANDAS HARIDAS V. COMMISSIONER OF INCOME-TAX (1960) 39 I. T. R. 202. ( 19 ) THE position therefore is well settled that there is no impediment in a Hindu undivided family becoming a partner of a firm through its representative. Such a partnership will not be invalid or against law but partnership being a relationship between persons who have agreed to share the profits of a business carried on by all or acting for them all and the relationship of partnership being one that arises from a contract the persons who come together in the partnership will be recognized as between them as partners. In a case where one of the partners represents a Hindu undivided family or is a Trustee of a trust the members of the family or the beneficiaries in the trust as the case may be cannot exercise rights which their representative can exercise as against the other partners. They cannot sue on behalf of the firm for settlement of accounts and cannot exercise any rights as against the other partners as if they are themselves the partners in the partnership firm. This is not to say that they have no rights at all arising from the fact that the partner is their representative. They can make their representative accountable to them. They can seek to enforce his obligations and the representative will be bound to observe all obligations which law casts on him as such representative. Where one of the partners is really a representative of others third parties are not barred from dealing with him in his representative capacity for they are not parties to the contract of partnership. The Revenue is in no way precluded from dealing with the partner as a representative if he is one such as for instance where he is a Karta of a Hindu Undivided Family. The income derived by him as a partner would really be income of the Hindu undivided family and really derived by the Hindu undivided family. Of course when the Income-tax Officer has granted registration to the firm the firm has to be assessed and the next logical step is to assess the partners taking into account also the income of the partners derived from the firm. Of course when the Income-tax Officer has granted registration to the firm the firm has to be assessed and the next logical step is to assess the partners taking into account also the income of the partners derived from the firm. In doing so if the partner is receiving income on behalf of a Trust it is the Trust that has to be assessed on that part of the income or in other words he is to be assessed as a Trustee and not in his individual capacity. If it is a Hindu undivided family on behalf of which he receives the income the partner being its representative it is the income of the family which is ultimately to be assessed. The revenue also cannot have a different case as it is seen that after determining the net divisible income of the firm for the year 1970-71 as Rs. 2 36 560 the Income-tax Officer proceeds to pass an order under sec. 184 granting registration to the firm for that year and further proceeds to pass an order under sec. 158 as follows: @@@ total income is allocated amongst the partners as under: Profit Int. Total RF 1 Shri Chhotalal S. Virani Rs. Rs. Rs. HUF. 1/4th 18 178 1 57 76 1 75 254 2 Priyavanda C. Virani Trustee of Shuba Trust. 1/4th. . 18 178 2 258 20 436 3 Subha C. Virani Trustee Chhotalal Trust 1/4th 18 177 2 258 20 435 4 Sunanda C. Virani Trustee of Priyavanda Trust 1/4th 18 177 2 258 20 435 - - - Total Rs. 72 710 1 63 850 2 36 560 - Evidently Shri C. S. Virani has been allocated 1/4th of the profit and to that is added interest paid to Shri C. S. Virani in his individual account as well as interest paid to the Hindu undivided family and the total allocation is thus Rs. 1 75 254 Similar allocation is made for the next assessment year 1971-72 also seen from the order under sec. 158 of the I. T. O. which is reproduced hereinbelow: Name of the assessee Share Profit Interest Total Rs. Rs. Rs. 1 75 254 Similar allocation is made for the next assessment year 1971-72 also seen from the order under sec. 158 of the I. T. O. which is reproduced hereinbelow: Name of the assessee Share Profit Interest Total Rs. Rs. Rs. 1 Shri Chhotalal S. Virani 1/4th 43 27 3 330 (H. U. F.) 1 37 606 -- 1 40 936 1 83 963 2 Shri Shubha Trust 1/4th 43 26 3 533 46 559 3 Shri Chhotalal Trust 1/4th 43 26 3 533 46 559 4 Shri Priyavanda Trust 1/4th 43 26 3 533 46 559 -- Rs. 1 72 105 1 51 535 3 23 640 -- -- (emphasis supplied) We are only pointing out that rightly the Income-tax Officer has noticed in the order under sec. 158 that Shri C. S. Virani is representing the Hindu undivided family. @@@ ( 20 ) THE Revenue is not precluded from looking into the real character of the partner and the capacity in which he represents himself in the partnership firm. If that be so for the purpose of sec. 40 (b) of the Income-tax Act 1961 is the Revenue to take note of the repre- sentative character of the assessee and make disallowance falling within the section in accordance therewith ? That is the question which we are really called upon to answer here. . ( 21 ) WHAT is said for the Revenue is that while the Revenue may take note of the fact that Shri C. S. Virani really represents a Hindu undivided family when it makes the individual assessment on the Hindu undivided family of which he is a representative that will have no bearing when the Revenue seeks to assess the firm to its tax. At that stage it is said the real character of Shri C. S. Virani does not call for consideration and he need be treated only as a partner and if so treated whatever is paid as interest to Shri C. S Virani irrespective of the character in which such payment is made is to be disallowed on account of sec. 40 (b) of the Act. This approach would assume that. so far as the Revenue is concerned the Revenue cannot take note of the capacity in which a person happens to be a partner of a firm. 40 (b) of the Act. This approach would assume that. so far as the Revenue is concerned the Revenue cannot take note of the capacity in which a person happens to be a partner of a firm. Such an approach is unsustainable in law for whatever may be the obligations as between the partners arising out of a contract so far as the Revenue is concerned it is the real character of the partner who is assessed that would be relevant for assessment purpose. If Shri C. S. Virani is a partner as representing a Hindu undivided family at all times the Revenue can only treat him as representing Hindu undivided family whatever may be the rights of the other partners in the firm as against him. If so when Shri C. S. Virani as representing the Hindu undivided family has advanced funds of the Hindu undivided family to the firm and interest thereon is paid to the Hindu undivided family it is interest paid to Shri C. S. Virani the partner. If he advances amounts from his individual account when he is a partner as representative only of the Hindu undivided family the interest is not paid to him qua a partner but as a stranger. ( 22 ) WE should point out an anomaly if a different view is taken. Supposing a stranger advances a substantial sum of money to a firm on interest and the interest is being paid by the firm to that stranger such interest payments could be deductible as revenue expenditure under sec. 37. If by some fortuitous circumstance such stranger becomes a Trustee of a Trust the previous Trustee of which was a partner of that firm can it for that reason be said that the interest which had to be paid to him as was done earlier not as trustee but on his own individual account should no longer be an item of expenditure to be deducted ? We see neither reason nor logic in such an approach. If the Income-tax authorities are to act on the basis of real facts and not on any assumptions then for the purpose of sec. We see neither reason nor logic in such an approach. If the Income-tax authorities are to act on the basis of real facts and not on any assumptions then for the purpose of sec. 40 (b) they will have to consider the Hindu undivided family as represented by Shri C. S. Virani as the partner and if that is so what is paid to Shri C. S. Virani as representing Hindu undivided family by way of interest will alone fall within the section. ( 23 ) WE had the benefit of hearing in this case besides Mr. . C. Patel Counsel for the assessee and Mr. B. R. Shah Counsel of the Revenue Mr. N. R. Divetia who intervened apprehending than that may be observed in this case may be of consequence to his clients in other cases and therefore he must have a hearing. We are happy to have his assistance in the case. Evidently the anxiety of the counsel is that earlier decision in C. I. T. V. SAJJANRAJ DIVANCHAND (1980)126 I. T. R. 654 should be sustained and what we may say here may not detract from the authority of that decision. It is necessary to advert to the facts of that case. The assessee was a registered firm doing business in cloth. It had three partners one of whom Sajjandas Jwaladas had joined the partnership in his capacity as the Karta of the joint Hindu family of Sajjandas Jwaladas. During the year in question the firm paid interest amounting to Rs. 7 777 to the Hindu undivided family. Invoking sec. 40 (b) of the Income-tax Act 1961 the Income-tax Officer disallowed the deduction. The appeal to the AAC having been dismissed the assessee took the matter to the Tribunal. The Tribunal held that the amount of Rs. 7 777 must be deducted as expenditure in the assessment of the firm. At the instance of the Revenue the matter came up before this Court. In that case also there were two separate accounts One the Hindu undivided family account and the other individual account and the amount of Rs 7 777 was paid by way of interest to the Hindu undivided family account. At the instance of the Revenue the matter came up before this Court. In that case also there were two separate accounts One the Hindu undivided family account and the other individual account and the amount of Rs 7 777 was paid by way of interest to the Hindu undivided family account. Dealing with this question the Court observed:the fact that the Karta of the HUF was a partner of the assessee firm was not relevant because under sec 40 (b) it is only the interest paid to the partner which is not allowed to be deducted Interest paid to any other creditor of the firm cannot be disallowed under the provisions of sec. 40 (b ). ( 24 ) THIS was considered to be the correct legal position and therefore it was found that the sum paid to the Hindu Undivided Family cannot fall within the mischief of sec 40 (b ). The Court ultimately said:under these circumstances in every case the test to be applied is as to who is the partner of the firm and irrespective of the character in which he is the partner of the firm whether any interest is said to him as partner. If the creditor of the firm is not the partner but the HUF of which the partner is the Karta then a separate entity is the creditor of the firm and interest paid to that separate entity will not be governed by sec. 40 (b) and cannot be disallowed. ( 25 ) BASED on this approach the Counsel Shri Divetia contended that what is to be disallowed is not the interest paid to the partner in his individual account even if the partner only represents the Hindu undivided family but what is paid into the Hindu undivided family account. This is so because according to the Council the partner is only the individual and not the Hindu undivided family and if so what is paid to the individual alone is to be disallowed and what is paid to the Hindu undivided family is not to be. We think that such an approach evidently springs from a misconception that the income-tax authorities are precluded from noticing that the partner represents a Hindu undivided family and not himself in the firm. We think that such an approach evidently springs from a misconception that the income-tax authorities are precluded from noticing that the partner represents a Hindu undivided family and not himself in the firm. If as a matter of fact the income-tax authorities are precluded from going into that question and have to treat the partner whose name appears in the partnership as the only person who is to be treated as a partner then the result may perhaps be that the amounts paid into his accounts whether it be into the Hindu undivided family account standing in his name or his personal account both will have to be disallowed as falling under sec. 40 (b) of the Act a situation which may perhaps be to the advantage of the Revenue. ( 26 ) ONCE we accept the situation that contracting partners alone are bound by the terms of the contract and it is open to the Revenue to see the partner as he really is it goes without saying that when he represents a Hindu undivided family that has to be disallowed and not any interest paid into his individual account as interest in lieu of advance made by him personally. Even if he happens to be the Karta of the Hindu undivided family but he becomes a partner in his own account and amounts are advanced to the firm by him from his individual account and also by the Hindu undivided family the amount of interest paid to the Hindu undivided family account cannot be disallowed while the interest paid in his account has to be disallowed. That is not the situation here. We are not presuaded to agree with the approach made in the case reported in (1980) 126 I. T. R. 654 for the reason we have explained herein. We think that that decision has necessarily to be overruled. ( 27 ) WE may advert to the decision of the Gujarat High Court in DINUBHAI ISHVARLAL PATEL V. K. D. DIXIT INCOME-TAX OFFICER AHMEDABAD AND OTHERS (1979) 118 I. T. R. 122 which in a way supports the approach made by us in this case. We think that that decision has necessarily to be overruled. ( 27 ) WE may advert to the decision of the Gujarat High Court in DINUBHAI ISHVARLAL PATEL V. K. D. DIXIT INCOME-TAX OFFICER AHMEDABAD AND OTHERS (1979) 118 I. T. R. 122 which in a way supports the approach made by us in this case. Where the assessee is a partner in a firm in his capacity as Karta of a Hindu Undivided Family the share income of his wife or son as partners of the firm cannot be included in the assessment of the Hindu Undivided Family. That is because sec. 64 (1) (ii) of the Income-tax Act speaks of an individual. That necessarily indicates that only in a restricted sense the term has been used viz. that of individual capable of having a wife or minor child or both and would therefore necessarily exclude from its purview other units. It was found in that case that though the Karta was a partner qua his other partners as an individual and he functions qua the other partners in his personal capacity qua the member of his HUF he is in his representative capacity and therefore the Revenue cannot treat him as an individual within the meaning of sec. 64 (1) (ii) of the Income-tax Act 1961 That indicates an approach similar to that we have made in this case. We notice that the view taken here has been taken by the Bombay High Court in a recent case C. I. T. V. PANNALAL HIRALAL and CO. (1983)15 TAXMAN 242. The facts are more or less similar to the facts here. The question there was of disallowance of interest paid on a personal loan by a representative of a Hindu undivided family who was a partner of a firm as such representative. In a rather short judgment the Court expressed the view that the interest paid to the partner was in his capacity as an individual and though he was a partner in the firm he was not a partner in his individual capacity but as representing the Hindu Undivided Family. Therefore it was held that the interest paid to him in his individual capacity cannot be payment made to a partner for the purposes of attracting the provisions of sec. Therefore it was held that the interest paid to him in his individual capacity cannot be payment made to a partner for the purposes of attracting the provisions of sec. 40 (b) of the Income-tax Act 1961 Though we notice that the Court relied on an earlier decision of that Court in C. I. T. V. HANSA DYEING and PRINTING WORKS 1976 C. T. R. (BOM.) 482 which is said to support the view it is doubtful whether in that case which related to rectification proceedings the Court had expressed any opinion which may support the view expressed in C. I. T. V. PANNALAL HIRALAL and CO. (SUPRA ). We are not proposing to go into the decisions concerning payment of salary to a partner for such payment stands on afooting different from the payment of interest. Payment of interest on amounts lent to the firm can be traced either to the individual or to the representative body by tracing the nature of the funds advanced but not so labour by a partner. Whether he works in the firm and receives salary as an individual or as a representative of the family cannot be known from the way he functions and. therefore payment of salary must stand on a different footing. ( 28 ) BEFORE we close we have to refer to a decision brought to our notice by Shri N. R. Divetia and on which considerable reliance has been placed by him in support of his stand that it is the interest paid to the Hindu undivided family that must be disallowed even though the partner is in the firm in his representative capacity. We do not think that the decision of the Supreme Court in RAMESHWARLAL SANWARMAL V. COMMISSIONER OF INCOME-TAX ASSAM (1980) 122 I. T. R. 1 relied on by the Counsel would be of any assistance in this case. That is a decision rendered in a different set of circumstances. That relates to the application of the definition in sec. 2 (6a) (e) of the Income-tax Act 1922 whether loan advanced to persons who are really not the shareholders but whose representative was said to be the shareholder should fall within the scope of the definition of dividend. The Court had to consider the question found on the definition. That relates to the application of the definition in sec. 2 (6a) (e) of the Income-tax Act 1922 whether loan advanced to persons who are really not the shareholders but whose representative was said to be the shareholder should fall within the scope of the definition of dividend. The Court had to consider the question found on the definition. Under the circumstances of the cases the Court took the obvious view that where it is not paid to the shareholder the definition cannot be applied and as to who a shareholder was the Court took the view that a registered shareholder was the shareholder for the purpose of the definition. The concept that we have to deal with is necessarily different. We have to understand the scheme in the background of the object sought to be achieved by sec. 40 (b) of the Income-tax Act 1961 ( 29 ) IN the facts and circumstances of this case we therefore answer the question referred to us in the negative i. e. in favour of the assessee and against the Revenue. No costs. ( 30 ) A copy of this judgment shall be sent under the seal of this Court and the Signature of the Registrar to the Income-tax Appellate Tribunal Ahmedabad Bench A. Answered in negative. .