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 individual capacity and not as representing their HUFs. Since these three persons were partners in a different capacity, that is, as the kartas, the interest paid to them as individuals could not be held to be payment to a partner of the firm. It directed the deletion of the amounts in the assessment of the firm.

3. AT the instance of the CIT, the Tribunal has solicited our opinion on the following question of law:

"Whether, on the facts and in the circumstances of the case, Section 40(b) of the I.T. Act, 1961, did not apply to the payment of interest to Sri C. L. Barry, I.L. Berry and P. K. Berry ?"

4. SECTION 40(b) reads :

"40. Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head ' 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."

This provision of the 1961 Act is the successor to Section 10(4) of the Act of 1922. The two provisions are identical, with the only difference that in Section 40(b) bonus has also been included. The question then arises who is the partner of a firm.

5. SECTION 2(23) of the Act of 1961 provides that the expressions "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932.

6. SECTION 4 of the Indian Partnership Act prescribes :

" 'Partnership' is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name'."

It is thus apparent that only "persons" can be partners.

7. SECTION 3(42) of the General Clauses Act says :

" 'Person' shall include any company or association or body of individuals whether incorporated or not."

8. THIS definition applies when there is nothing repugnant to the subject or context. After examining the position in the Partnership Act. the Privy Council in Senaji Kapurchand v. Pannaji Devichand, AIR 1930 PC 300 held that an association of persons is not a person within the meaning of that expression in the Partnership Act.

This view was approved by the Supreme Court in Firm Bhagat Ram Mohanlal v. CEPT [1956] 29 ITR 521. This was a case of a joint Hindu family. The Supreme Court held (p. 525):

"It is not in dispute that Mohanlal was the karta of the joint family, and that he entered into the partnership on 23rd August, 1940, as such karta,. It is well settled that when the karta of a joint Hindu family enters into a partnership with strangers, the memb