Judgment Aftab Alam, J. 1. Whether the explanations added to section 40 (b) of the income Tax Act, 1961 by the Taxation laws (Amendment) Act, 1984, w. e. f.1-4-1985 would apply only prospectively or having regard to its nature its aid can be taken even in proceedings relating to assessment years prior to 1-4-1985? This is the question that falls for consideration in this reference made by the Income Tax Appellate Tribunal, Patna bench, Patna on an application made under Sec.256 (1) of the Act at the instance of the Revenue. The reference arises from a proceeding for the assessment year 1984-85, i. e. prior to 1-4-1985, the date on which the explanation was added to Sec.40 (b) of the Act and the question on which this Courts opinion is sought has been framed as under: "whether on the facts and in the circumstances of this case the Income Tax appellate Tribunal was justified in deleting the addition of Rs.14,931. " 2. The facts of the case are brief and simple and can be stated thus. The assessee, a partnership firm in its return had shown to have deducted from its total income a sum of Rs.14,931, as Interest paid to one of its partners Sri rajendra Prasad. The aforesaid amount was not added to the total income of the assessee firm on the ground that the aforesaid Rajendra Prasad was a partner in the firm in his representative capacity as the Karta of a H. U. E whereas the interest was paid on the money which he had personally and individually advanced to the firm. In its books of account, the assessee firm appeared to have maintained two accounts: one in the name of "rajendra Prasad (H. U. E), bettiah" and the other in the name of "rejendra Prasad (individual), Chan-patia" and the interest was credited to the latter account. 3. The Income Tax Officer took the view that the interest having been paid to one of the partners of the firm, it was immaterial whether he was a partner in his personal capacity or as the Karta of a H. U. E and observed that the assessees plea was unacceptable in view of Sec.40 (b) of the Act. In the assessment order dated 6-12-1984 he accordingly added back this amount to the total income of the assessee firm. 4. In the assessment order dated 6-12-1984 he accordingly added back this amount to the total income of the assessee firm. 4. The assessee preferred an appeal before the Commissioner of Income lax a (Appeals) which was registered as Ap peal no.171 (B. T. H.)/84-85. The appellate authority also held that Section 4 40 (b) did not make any distinction between a partner in his individual capacity and a partner being the Karta of H. U. E It was also noted that on the same point the assessees appeal for the previous assessment years too had been dismissed. The appellate authority accordingly confirmed the dis-allowance of interest paid to Rajendra Prasad by its order dated 22-7-1985. 5. The assessee filed further appeal before the Income Tax Appellate tribunal, Patna Bench, Patna where it was registered as I. T. A. No.1089 (Patna)/1985. Before the Appellate tribunal the orders passed by the Income tax Officer and the C. I. T (Appeals) were assailed on the basis of the explanation added to section 40 (b)w. e. f.1-4-1985. Relying upon a Full bench decision of Madhya Pradesh high Court in C. I. T. V/s. Narbha Ram popat Bhai and Sons, 1987 (166) (I. T. R.534, it was urged that if a person is a partner in a firm in a representative capacity and if such partner lends to the partnership monies belonging to him individually, then the interest paid to such partner on the monies lent by him is not liable to be added back under Sec.40 (b) of the Act. The appellate Tribunal accented the assessees contention and further held that "the explanation in question being clarificatory in nature must be regarded as stating the correct position as respect the interpretation of the section. This would mean that the explanations will be retrospective with their operations and this is exactly what the Full Bench of the Madhya Pradesh high Court had said in the case referred to (supra ). " the Tribunal accordingly allowed the assessees appeal by order dated 9-4-1989. 6. Then on an application by the revenue under Sec.256 (1) it referred the afore-quoted question to this Court for its opinion. 7. At this stage, it would be apposite to take a look at section 40 (b) of the Act as it was originally enacted, and as it stood at the material time. 6. Then on an application by the revenue under Sec.256 (1) it referred the afore-quoted question to this Court for its opinion. 7. At this stage, it would be apposite to take a look at section 40 (b) of the Act as it was originally enacted, and as it stood at the material time. It is reproduced below: " (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. " 8. On the basis of the afore-quoted provision, as it originally stood, the view taken by the I. T. O. and the C. I. T. (Appeals) was undoubtedly a possible view. In this regard, it may be noted that the question of deduction of interest paid by a firm to one of its partners earlier came up for consideration before this Court in Chand Mul Rajgarhia V/s. Commissioner of Income Tax, (1987) 164 I. T. R.486. In that decision the question was considered in the light of the provision contained in section 40 (b) as it was originally enacted (as quoted above)and it was held that Sec.40 (b) of the Income Tax Act, 1961 , laid down that any salary, interest bonus or commission paid to a partner could not be deducted from the total income of the firm. That decision further held that even assuming that the partners to a firm were representative of their H. U. Families, that was an internal matter of their Hindu undivided families. As far as the firm was concerned, they were partners and received salary from the firm as partners. In view of Sec.40 (b) therefore the firm was not entitled to deduct the amount paid as salary to its partners. 9. Section 40 (b) of the Act was amended by the Taxation Laws (Amendment) Act, 1984, which introduced the following explanations to the Section w. e. f.1-4-1985: "explanation 1.- Where interest is paid by a firm to any partner of the firm who has also paid interest to the firm, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the firm to the partner exceeds the payment of interest by the partner to the firm. Explanation 2.- Where an individual is a partner in a firm on behalf, or for the benefit, or any other person (such partner and the other persons being hereinafter referred as "partner in a representative capacity" and "peison so represented" respectively ). (i) Interest paid by the firm to such individual or by such individual to the firm otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) Interest paid by the firm to such individual or by such individual to the firm as partner in a representative capacity and interest paid by the firm to the person so represented or by the person so represented to the firm, shall be taken into account for the purposes of this clause. Explanation 3.- Where an individual is a partner in firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken Into account for the pur-poses of this cfause, if such interest is received by him on behalf, or for the benefit, of any other person. " 10. After the insertion of the ex-planations particularly Explanations (2)and (3), there remains little doubt that if a person is a partner in a. firm in a representative capacity and if such partner lends to the partnership monies belonging to him individually, then the interest paid to such partner on the monies lent by him is to be lawfully deducted from the total income of the firm. 11. A question, however, arises whether this position will hold only after the introduction of the explanations, w. e. f.1-4-1985 or the same would apply to assessment years prior to the introduction of the Explanations. 12. Before proceeding to examine this question, it may be noted that the patna decision in Chand Mul Rajgarhias case is of no help on this question. In that decision, this Court was concerned with assessment years 1965-66 to 1969-70 and though the decision was delivered on 19-11-1985, the explanations in question added to section 40 (b)were not brought to the notice of the court. In that decision, this Court was concerned with assessment years 1965-66 to 1969-70 and though the decision was delivered on 19-11-1985, the explanations in question added to section 40 (b)were not brought to the notice of the court. Neither was the C. B. D. T. circular as reported in (1984) 149 I. T. R. (S. T.)127 brought to the Courts notice and hence the decision in Chand Mul rajgarhias case had no occasion to consider the question whether the explanations would apply only prospectively or they would apply also to year prior to 1-4-1985. 13. In support of his opention, learned Counsel for the assessee relied upon the Full Bench decision of the madhya Prader. h High Court in C. I. T. V/s. Narbha Ram Popat Bhai and Sons (1987) 166 I. T. R.534. He also invited our attention to Bench decision of the calcutta High Court in C. I. T. V/s. Mohanlal bhagwati Prasad, (1993) 234 I. T. R.234. 14. In the Calcutta decision one of the two questions referred for the courts opinion was exactly the same as arising in this case. For answering the question a Bench of the Calcutta High court, in its elaborate judgment, made as veritable survey of the decisions of the different High Courts both before and after the introduction of the explanation in Sec.40 (b ). Before the introduction of the explanations, there was a divergence of opinion among the different High Courts; the High Court of Patna in Chand Mul Rajgarhias case, supra, Allahabad and Delhi had taken a view that interest paid by a firm to one of its partners, in whatever capacity, it was paid to him, could not be allowed as deduction under Sec.40 (b) of the act; on the other hand, the High Court of Gujrat, Bombay, Andhra Pradesh and madras (in its later decision had taken the contrary view that the interest paid to a partner in his individual capacity would not be payment to a partner so as to attract the provisions of Section 40 (b ). 15. The Calcutta decision expressed the view that the legislature inserted explanation (2) in Sec.40 (b)perhaps with a view to settle the controversy arising due to the divergence of opinions among the High Courts on this point. 15. The Calcutta decision expressed the view that the legislature inserted explanation (2) in Sec.40 (b)perhaps with a view to settle the controversy arising due to the divergence of opinions among the High Courts on this point. On this reasoning, it went on to hold that explanation (2) was merely declaratory of the existing law as contained in clause (b ) of Sec.40 and the explanations were merely intended to remove the doubt raised on account of the conflicting High Court decisions. In support of its view the decision also referred to and relied upon a Circular issued by the Central Board of Direct taxes explaining the salient features of the Amendment Act by which the explanations were introduced. On a consideration of large number of decisions of different High Courts, the Calcutta decision laid down that the explanation were not new enacting provisions carving out any exception from the general rule contained in clause (b ). 16. Having heard learned Counsel for the parties and having given this question our careful consideration, we find ourselves in respectful agreement with the views expressed in the Full bench decision of the Madhya Pradesh high Court in Nirbha Ram Popat bhais case and in the Calcutta decision in C. I. T V/s. Mohanlal bhagwati Prasad holding that explanation (2)to section 40 (b) being clarificatory in nature, its aid can be taken in assessment years prior to 1-4-1985, its date of introduction. 17. The reference is, therefore, answered in the affirmative, that is to say, in favour of the assessee and against the revenue. Reference Answered in Affirmative