K.C. AGRAWAL, J.

1. This is a reference at the instance of Revenue and relates to the assessment years 1971-72 and 1972-73. R. N. Mehra was one of the partners of the respondent-assessee, Messrs Nitro Phosphetic Fertilizer, Lucknow. He joined the partnership representing the Hindu undivided family of which he was the karta.

2. In the books of account of the firm, there was a capital account for the Hindu undivided family and a deposit in the name of R. N. Mehra, individual. On the deposit in this account, the firm paid interest to the individual and the same was claimed as a deduction in the profit and loss account. The amounts of interest paid were as under :

Assessment year Amount of interest

1971-72 Rs. 8,400

1972-73 Rs. 9,120

The assessees contention was that since the status of R. N. Mehra, depositor, was different from the status of R. N. Mehra (HUF), partner, it was entitled to deduct the interest paid to R. N. Mehra in his individual capacity. The Income-tax Officer did not agree with the assessee. He held that since R. N. Mehra was a partner in his capacity as karta of the Hindu undivided family such payment of interest was not allowable according to the provisions of section 67(1)(b) of the Income-tax Act, 1961. He held that no distinction could be made in the two deposits, one made by R. N. Mehra in the capacity of karta of the Hindu undivided family and other in his capacity as individual Consequently, the assessees claim was disallowed and the interest was added to the total income of the firm in the relevant years.

3. On appeal, the Appellate Assistant Commissioner reversed the judgment of the Income-tax Officer holding that interest paid to the partner was only to be added under section 40(b) and as R. N. Mehra, individual, was not the partner, the interest paid to his account could not be added under section 40(b) of the Income-tax Act. The additions, in this behalf, made in his account were, therefore, deleted.

4. The Revenue took up the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal upheld the judgment of the Appellate Assistant Commissioner.

The question that was referred to the High Court under section 256(1) of the Income-tax Act for its opinion was :

Whether, on the facts and circumstances of the case, the Tribunal was correct in upholding the orders of the Appellate Assistant Commissioner in allowing the assessees claim for interest paid on the credit balance in the individual account of Sri R. N. Mehra amounting to Rs. 8,400 and Rs. 9,120 in the assessment years 1971-72 and 1972-73. respectively ?

When the reference came up for hearing before a Division Bench of this court, the decision of our court in CIT v. London Machinery Company, 1979 117 ITR 111 was relied upon by the Revenue. The Division Bench felt that the said decision required reconsideration. Therefore, reference was made to a larger Bench. In pursuance of this reference, the case has come up before the Full Bench.

5. Section 40(b) of the Income-tax Act 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.

Before we come to the interpretation of the aforesaid provision, the language of which appears to be absolutely explicit and admits of no doubt, we may, briefly, refer to the object behind it.

6. This clause re-enacts the provision formerly contained in section 10(4)(b) of the 1922 Act, with the addition of the word bonusandquot;. The object was to pre-empt partners siphoning off substantial profits in the guise of salary, interest, bonus, commission, etc., so that tax evasion is checkmated. In CIT v. R. M. Chidambaram Pillai, 1977 10 ITR 292, the Supreme Court held that payment of salary to a partner represen