Section 40(b) of the Income-tax Act, 1961 applies to all payments made by a firm to its partners, regardless of whether the partner is an individual or represents a HUF.

S. RANGANATHAN, J.

( 1 ) THESE are four income tax references at the instance of the assessee, a firm known as M/s. Sanghi Motors, pertaining to the assessment years 1966-67 to 1969-70. The common question involved in all these references lies within a very narrow campass. The assessee is a firm of eight partnres of whom three were partners of the firm in their capacity as the Kartas of their respective Hindu Undivided Family. To one of such persons, namely, Suresh Kumar Sanghi the firm paid salary, interest on deposits and bonus. It is common ground that Suresh Kumar Sanghi was a partner in the firm in his capacity as the Karta of his Hindu Undivided Family and that the income of the firm which fell to hisshare was assessed in the hands of the respective family and not included in his assessment as an individual. Equally it is common ground that the salary and the bonus were paid to Suresh Kumar Sanghi in respect of services rendered by him and were assessable as his individual income. So also the deposits made by him with the firm on which he derived interest were all deposits made by him out of his own individual funds and the interest in respect of those deposits also has been. assessed only in his hands as an individual. Thus. the income received from the firm by Suresh Kumar Sanghi was being assessed partly in the hands of the family and partly in his individual hands. Those assessments are not in dispute. The question which arises before us is whether in completing the assessments of the firm for the assessment years 1965-67 to 1969-70 the Income-tax Officer was justified in disallowing the salary, interest and bonus paid to Suresh Kumar Sanghi by applying the provisions of section 40 (b) of the Income-tax Act, 1961. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Appellate Tribunal have all agreed that the disallowance has to be made. The assessee was, therefore, aggrieved by the decision of the Tribunal and at its instance the following questions of law have been referred to us which, though differently phrased for different years, basically raise the common question as to the applicability of section 40 (b) in the circumstances outlined above : I. T. R. 131/75 (assessment year 1966-67)

"whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the following amounts paid to S. K. Sanghi were not allowable as revenue expenditure of the firm Sanghi Motors : 1. Salary : Rs. 21,000. 00. 2. Interest : Rs. 7,014. 00. "i. T. R. 134175 (assessment year 1967-68) "whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the following amounts paid to S. K. Sanghi were not allowable as revenue expenditure of the firm Sanghi Motors : 1. Salary : Rs. 26,250. 00. 2. Interest : Rs. 5. 457. 00. I. T. R. 191175 (assessment year 1968-69 ). "whether on the facts and in circumstances of the case, the Tribunal was right in holding that the following amounts paid to Shri Suresh Kumar Sanghi were not allowable as revenue expenditure of the firm Sanghi Motors : 1. Salary and Bonus : Rs. 26. 250/ 2. Interest on deposits; Rs. 2. 030. 00. "whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the following amounts said to Sh. Suresh Kumar Sanghi were not allowable as revenue expenditure of the firm Sanghi Motors : 1. Salary Rs. 21,000. 00. 2. Interest on deposits Rs. 4,181. 00. 3. Bonus Rs. 5,250. 00. We may mention that though the question refers to the allowability of the items referred to earlier as revenue expenditure of the firm. it is clear that the allowability has to be decided in terms of section 40 (b) for in the event of section 40 (b) being applicable the items cannot be allowed as a deduction in computing the total income of the firm.

( 2 ) THE question raised before us is not res Integra. There are a number of decisions on this issue which have been quoted and referred to in the rec

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