Satish Chandra, C.J.

1. THIS reference relates to the assessment year 1972-73. The assessee is a registered firm, consisting of seven partners. According to the partnership deed, three of them, to wit C.L. Barry, I.L. Berry and P. K. Berry, were stated to be partners acting as kartas of their respective Hindu undivided families (HUF for short). The HUFs contributed capital, but the partnership deed provided that no interest shall be paid on it unless the partners agreed otherwise. The other four partners entered the firm in their individual capacities.

2. THE three karta-partners deposited funds belonging to each of them in their individual capacity in the accounts of the firm. The firm paid to each of them interest amounting to a total of Rs. 20,996 as individuals. The firm claimed deduction of this amount as business expenditure. The ITO disallowed it. This disallowance was upheld on appeal.

The assessee took the matter to the Tribunal. The Tribunal considered the matter elaborately, and held that the three kartas were partners in the firm as representing their HUFs. The deposits were made by them from their own personal funds. The firm paid interest to them in their indi