( 1 ) IN all these matters a common question concerning the interpretation of section 40 (b) read with section 171 (9) of the Income-tax Act, 1961, arises for our consideration. It is enough to state illustratively one question referred for the opinion of this court by the Income-tax Tribunal in R. C. No. 40 of 1988 which is as follows :"whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was correct in holding that the interest of Rs. 21,170 paid by the assessee-firm in respect of amounts of share capital received by the son and daughter of Sri S. Krishna Rao as a result of partial partition on 31/03/1979, cannot be added under section 40 (b) read with section 171 (9) ?"

( 2 ) THE assessee in R. C. No. 40 of 1988 is a registered firm consisting of four partners. Two partners, Krishna Rao and Narayana Rao, had each 35 per cent. share in the profits and the remaining two partners, Pankajam and Sai Leela, each had 15 per cent. share in the profits. Krishna Rao was partner in the firm representing the Hindu undivided family of which he was a karta. A partial partition was effected on 31/03/1979, in consequence of which the interest in the partnership firm was partitioned among the members of the family; Narasimham s/o Krishna Rao and Parimala d/o Krishna Rao were allotted amounts of Rs. 1,02,608 and Rs. 15,000, respectively. During the relevant accounting period, the firm paid interest of Rs. 18,470 and Rs. 2,700 to Narasimham and Parimala, son and daughter of Krishna Rao. Ignoring the alleged partial partition, having regard to the provision under section 171 (9) of the Income-tax Act, 1961, the Assessing Officer added an amount of Rs. 21,170 to the income of the assessee-firm under section 40 (b) of the Act. On appeal, the Appellate Assistant Commissioner was of the view that inasmuch as the Hindu undivided family was originally represented in the firm by some other coparcener and as Narasimham and Parimala were not partners of the assessee-partnership firm, section 40 (b) was not applicable. He, therefore, deleted the addition of Rs. 21,170. On appeal by the Department, the Tribunal upheld the order of the Appellate Assistant Commissioner following its earlier view taken in K. Appala Narasimhulu and Sons v. ITO in I. T. A. No. 556/hyd of 1982. At the instance of the Revenue, the aforesaid question was referred for the opinion of this court. R. C. No. 241 of 1990 arising out of I. T. No. 556 of 1982 is also included in this batch.

( 3 ) IN all the six referred cases, the same question arises for consideration although the amounts of interest are different, the dates of alleged partition are different but they all took place after 31/12/1978.

( 4 ) SECTION 40 specifies the amounts not to be deducted in the computation of income chargeable to tax under the head "profits and gains of business or profession" notwithstanding anything to the contrary in sections 30 to 38. Clause (b) of section 40 as it stood at the relevant time read as follows :-"section 40 (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; 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, of any other person (such partner and the other person being hereinafter referred to as partner in a representative capacity and person 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)