Uday Sinha, J.:— In these references under section 256(1) of the Income-tax Act (to be called “the Act”), we are concerned with the assessment years 1965-66 to 1969-70. The questions referred for our opinion are:

“1. Whether, on the facts and in the circumstances of the case, the salary and interest paid to Ram Ratanlal Rajgarhia and Maniklal Rajgarhia have been correctly added while computing the income of the assessee-firm by applying the provisions of section 40(b) of the Income-tax Act in the assessments of the firm for the assessment years 1965-66 to 1969-70?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 45,781 received on devaluation of rupee was a taxable receipt in the hands of the assessee in the assessment year 1967-68?”

2. The assessee is a partnership firm. The firm came into existence in 1953. Prior to it, Chandmul Rajgarhia, father of Ram Ratanlal Rajgarhia and Maniklal Rajgarhia, alone was managing the business. The partnership firm set up in 1953 consisted of Ram Ratanlal Rajgarhia and Maniklal Rajgarhia, as partners. Five others who were their minor children were admitted to the benefits of the partnership. While assessing the firm during the relevant assessment years, the firm claimed deduction of salary and interest paid to Ram Ratanlal Rajgarhia and Maniklal Rajgarhia. These salary and interest payments were paid to them by the firm besides their share of profits of the firm. The Income-tax Officer rejected the claim of deduction of salary and interest payable to them. According to the Income-tax Officer, section 40(b) was a bar to deduction of salary and interest paid to the partners. The stand of the assessee-firm was that the Hindu undivided families of Ram Ratanlal Rajgarhia and Maniklal Rajgarhia were partners of the firm and representatives of the Hindu undivided family being their respective kartas. Their claim was that just as salary or interest could have been paid to any stranger and the firm would be entitled to deduct those sums as business expenditure, the payment of salary and interest to them too was deductible expenditure. The claim of the assessee found favour neither with the Department nor with the Tribunal. The salary and interest payments were added to the taxable income of the firm. Hence, the present references to this court for our opinion.

3. The difficulty in the way of the assessee is created by section 40(b) of the Act which reads as under:

“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.”

4. The language of the Act is absolutely explicit and admits of no doubt. It places an embargo upon deduction of salary or interest paid to a partner by the firm. Ram Ratanlal Rajgarhia and Maniklal Rajgarhia were partners of the firm. They were paid salary by the firm. In terms of section 40, the salary paid to them cannot be claimed as expenditure, but must be added to the total income of the firm.

5. Learned counsel for the assessee has agitated before us the same questions as raised before the Tribunal. The first question is about the deduction of salary paid to Ram Ratanlal Rajgarhia and Maniklal Rajgarhia. Ram Ratanlal Rajgarhia and Maniklal Rajgarhia were admittedly partners of the firm. The salary was paid to them for their labour and exertion. Although, for the sake of argument, it may be conceded that they had a dual personality, namely, an individual and, secondly, as representatives of the Hindu undivided family, yet it admits of no doubt that salary was paid to them for their exertions. In the matter of assessment of the firm, the existence of the Hindu undivided family was irrelevant. It is well settled that a Hindu undivided family cannot be a partner. There can, therefore, be no escape from the position that salary had been paid to the partners of the firm. That immediately attracts the provisions of section 40(b) of the Act. The subtle submission that the Hindu undivided family was different from the two partners lacks substance. Assuming that Maniklal Rajgarhia and Ram Ratanlal Rajgarhia were representatives of their own Hindu undivided families, that was an internal matter of their Hindu undivided families. For the assessee-firm, they were the partners. The payments were made to them qua partners. The payment was nothing but a special payment out of the profits.

6. The matter is now beyond the pale of controversy. Payments of salary cannot be allowed to be deducted. In CIT v. R.M Chidambaram Pillai, [1977] 106 ITR 292, the Supreme Court held that payment of salary to a partner represents a special share of the profits and that salary paid to a partner retains the same character as income of the firm. Salary being part of the profit, there is no justification for deducting it from the taxable income. The object of section 40(b), which was section 10(4)(b) of the 1922 Act, was to pre-empt partners siphoning off substantial profits in the guise of salary and so arranging such distribution of income by salary that tax evasion becomes legally protected. The view that I have taken finds support in A.S.K Rathnaswamy Nadar Firm v. CIT, [1965] 58 ITR 312 (Mad), Giridharilal Ghasiram v. CIT, [1968] 69 ITR 890 (Cal), Commissioner Of Income-Tax v. Jainarain Jagannath*, [1945] 13 ITR 410 (Pat) and V.D Dhanwatey v. CIT, [1968] 68 ITR 365 (SC). I have, therefore, not the least doubt that the salary paid to Ram Ratanlal Rajgarhia and Maniklal Rajgarhia had been correctly added while computing the income of the assessee-firm by applying the provisions of section 40(b) of the Act. The first question in that limited respect is answered accordingly in favour of the Revenue.

7. Interest paid to partners.— The next part of the first question referred to us relates to addition of interest paid by the firm to the very same two partners, i.e, Ram Ratanlal Rajgarhia and Maniklal Rajgarhia. Needless to say in this regard as well, the assessee is confronted by section 40(b) of the Act, quoted earlier. Here again the assessee has tried to put up a dual stand for the two partners—one as strangers and the other as representatives of the Hindu undivided family. The case of the assessee is that in 1953 (relevant to the assessment year 1954-55) “the self-acquired property of Chandmul Rajgarhia was put in a common hotchpotch and then a partition was effected in the family of Chandmul Rajgarhia. On partition, Ram Ratanlal Rajgarhia got his share (on partition) from the Hindu undivided family funds and with that fund he could become a partner of the firm of M/s. Chandmul Rajgarhia. Ram Ratanlal Rajgarhia and Maniklal Rajgarhia had their own business and were being assessed by the Department in their individual capacity. The capital of the individual as well as that of the Hindu undivided family was employed in the firm, M/s. C.M Rajgarhia. Interest was charged on the capital of the individual as also on the capital of the Hindu undivided family (see annexure D)”. The case of the assessee further is that from January 1, 1965, the partners, were having two accounts. One of those accounts represented the individual account of the partners. The second account which was the account of the Hindu undivided family represented the capital account of the Hindu undivided family. On that basis, the firm's stand is that interest paid to Maniklal Rajgarhia and Ram Ratanlal Rajgarhia was payment to their individual account as distinct from payment to the Hindu undivided family. Interest paid, therefore, to the partners should not be treated as payment to partners attracting the guillotine of section 40(b) of the Act. In paragraph 21 of its order, the Tribunal has observed that:

“It might be true that these two gentlemen were partners in this firm in their representative capacity.”

8. But there is no categorical finding by the Tribunal in this behalf. If such a finding had been recorded, some of our botheration would have been reduced. I shall, therefore, proceed on the assumption that they were partners as representatives of their Hindu undivided families. Let us see how matters stand.

9. The Appellate Assistant Commissioner, in his order dated August 23, 1972 (annexure-B), has observed as follows:

“3. The Income-tax Officer has disallowed an interest of Rs. 95,384 as paid by the appellant firm to its partners. It is claimed that a portion of Rs. 95,384 has been paid to such persons as are, though partners in the firm, yet the interest has been paid on such amounts of those persons as do not constitute their capital investment in the firm but on amounts belonging to them in their individual capacity. I asked the learned advocate to prove it and to bifurcate, according to the appellant, such two types of interest. The appellant has evidently failed to prove his case. Therefore, this disallowance of interest of Rs. 95,384 is confirmed as justified.”

10. The observation of the Appellate Assistant Commissioner that the assessee failed to bifurcate the two payments of interest is rather significant. On the said basis, the Appellate Assistant Commissioner rightly rejected the claim for deduction of interest paid to the alleged individual accounts of the two partners. It appears that the assessee made no attempt before the Tribunal to establish bifurcation and to satisfy the doubt raised by the Appellate Assistant Commissioner.

11. The claim for deduction of interest paid to partners has been agitated in several cases. The courts in India seem to have taken two divergent views. In my view, the interest paid to a partner cannot be deducted from the income of the firm—no matter whether the partner had advanced the loan in his individual capacity or as a representative of a Hindu undivided family. If section 40(b) has to be given effect to, any payment made to a partner as interest or salary, etc., cannot be deducted from the total assessable income of the firm. The position in law in regard to payment of interest is the same as payment of salary. The claim for deduction of salary paid to a partner has never been allowed even if the partner is a partner representing a Hindu undivided family, yet some courts have taken a different view of the matter in regard to payment of interest. The contention advanced on behalf of the assessee has been that the partner receiving the salary or interest is a personality entirely different from that of a representative of a Hindu undivided family. While some courts have disallowed the claim of deduction in regard to salary, some courts have allowed deduction of interest paid to a partner on the basis that the partner advancing the loan in individual capacity is a personality different from the partner as representatative of a Hindu undivided family. I have some difficulty in appreciating that distinction made in regard to payment of salary and payment of interest to a partner.

12. Let us now concentrate on the question posed before us. The submission urged on behalf of the assessee before the Tribunal as before us is that the interest credited by the firm to the separate accounts of Ram Ratanlal Rajgarhia and Maniklal Rajgarhia had to be deducted on the footing that the interest paid to the account of the Hindu undivided family alone could be treated as interest paid to the partners. The basis of this submission is that the two partners represented two separate Hindu undivided families and were partners as representatives of their Hindu undivided family. The payment made to the Hindu undivided family account, i.e, the capital account, therefore, may be treated as interest paid to partners, but interest paid to the separate interest account of the two brothers was interest paid to them on their individual investments entirely distinct from that of the Hindu undivided family. Just as any stranger could make advance to the firm and receive interest thereon, the two partners also received interest as strangers. On that basis, the interest paid into the separate individual accounts of the partners had to be deducted from the total income of the firm of which they were partners.

13. There can be no doubt that a partner may have a dual personality— one as an individual and another as a representative of a Hindu undivided family. But the duality of his personality does not solve the problem. Whatever may be his personality in relation to his Hindu undivided family, he remains a mere partner for the partnership and no more. The entire controversy, if it could be said to exist, veers round the question whether a Hindu undivided family can be a partner.

14. In CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 (SC), S.R Das C.J laid down the law as follows (pp. 127 and 128):

“It is now well settled that a Hindu undivided family cannot as such enter into a contract of partnership with another person or persons. The karta of the Hindu undivided family, however, may and frequently does enter into partnership with outsiders on behalf and for the benefit of his joint family. But when he does so, the other members of the family do not, vis-a-vis the outsiders, become partners in the firm. They cannot interfere in the management of the firm or claim any account of the partnership business or exercise the rights of a partner. So far as the outsiders are concerned, it is the karta who alone is, and is in law recognised as, the partner. Whether in entering into a partnership with outsiders, the katta acted in his individual capacity and for his own benefit or he did so as representing his joint family and for its benefit is a question of fact. If for the purpose of contribution of his share of the capital in the firm the karta brought in monies out of the till of the Hindu undivided family, then he must be regarded as having entered into the partnership for the benefit of the Hindu undivided family and as between him and the other members of his family, he would be accountable for all profits received by him as his share out of the partnership profits and such profits would be assessable as income in the hands of the Hindu undivided family. Reference may be made to the cases of Kanirani Hazarimull v. CIT, [1955] 27 ITR 294 and Dhanwatay v. CIT, [1957] 32 ITR 682 in support of this view.”

15. That was a case where interest had been paid to one R, who was a managing director of an incorporated private company. In that case, effort was made to avoid the above proposition of law on the footing that whereas the said proposition may be undisputed in regard to a karta as partner of a firm, it will not apply to, a karta acting as managing agent. This submission was repelled in the following words ([1959] 37 ITR at pp. 129 and 130):

“Vis-a-vis the company, the managing director is undoubtedly the individual person who is appointed as such. The company is not concerned with the managing director's Hindu undivided family or the members thereof, just as the outside partners know only the karta in his individual capacity as their partner and are not concerned with his Hindu undivided family or its members. The question whether the amount received by the karta by way of managing director's remuneration in the one case or as his share of profits in the partnership business in the other case is his personal income or is the income of his Hindu undivided family cannot arise as between the company and the karta as the managing director or between the outside partners and the karta as a partner. Neither the company nor the outside partners, as the case may be, is or are interested in such a question. Such question can arise only as between the karta and the members of his family and the answer to the question will depend on whether the remuneration or profit was earned with the help of joint family assets.”

16. The law was thus succinctly laid down that a Hindu undivided family cannot be a member of a partnership. Whatever may be the relationship between the Hindu undivided family and its karta, it was a matter of no concern for the partnership. If the status of the karta is immaterial for the partnership, it must be axiomatic that the income-tax law cannot take note of the personality of a partner being the karta of a Hindu undivided family. The karta is the partner and will be taken as such and nothing else. He has no other personality so far as the firm is concerned. In the case of CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 (SC), the Hindu undivided family of R was the assessee and not the company of which the karta was the managing agent. In that background, the question referred was whether the Tribunal was justified in apportioning a sum paid by the company to R into two parts; assessing one in the hands of the Hindu undivided family and the other in the hands of R. In that background, the Supreme Court held that since the managing director's remuneration received by R was, as between him and the Hindu undivided family, the income of the latter, it should be assessed in its hands. The principle enunciated by the Supreme Court in relation to salary must hold good in relation to payment of interest as well. The law laid down by the Supreme Court in the case of CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 was approved in Piyare Lal Adishwar Lal v. CIT, [1960] 40 ITR 17 (SC).

17. The correctness of the case of CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 (SC) was assailed in V.D Dhanwatey v. CIT [1968] 68 ITR 365 and the Supreme Court once again approved the dictum in Kalu Babu Lal Chand's case, [1959] 37 ITR 123 (SC) without any reservation.

18. In Kshetra Mohan-Sannyasi Charan Sadhukhan v. CEPT, [1953] 24 ITR 488 (SC), it was laid down as follows (at p. 492):

“A Hindu undivided family is no doubt included in the expression ‘person’ as defined’ in the Indian Income-tax Act as well as in the Excess Profits Tax Act but it is not a juristic person for all purposes. The affairs of the Hindu undivided-family are looked after and managed by its karta. When two kartas of two Hindu undivided families enter into a partnership agreement, the partnership is popularly described as one between the two Hindu undivided families but in the eye of the law it is a partnership between the two kartas, and the other members of the families do not ipso facto become partners. There is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual members of another Hindu undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families.”

19. In Firm Bhagat Ram Mohan Lal v. CEPT, [1956] 29 ITR 521 (SC), the Supreme Court ruled that (at p. 525):

“It is well settled that when the karta of a joint Hindu family enters into a partnership with strangers, the members of the family do not ipso facto become partners in that firm. They have no right to take part in its management or to sue for its dissolution. The creditors of the firm would no doubt be entitled to proceed against the joint family assets including the shares of the non-partner coparceners for realisation of their debts. But that is because under the Hindu law, the karta has the right when properly carrying on business to pledge the credit of the joint family to the extent of its assets, and not because the junior members become partners in the business. In short, the liability of the latter arises by reason of their status as coparceners and not by reason of any contract of partnership by them.”

20. It would be relevant to refer to the decision of the Supreme Court in CIT v. Bagyalakshmi and Co., [1965] 55 ITR 660 (SC). In that case, it was observed that (p. 664):

“A contract of partnership has no concern with the obligation of the partner to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners.”

21. To quote the words of their Lordships (at pp. 664 and 666):

“A partner may be the karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may, under an agreement, express or implied, be the representative of a group of persons; he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties whom one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties…. the law of partnership and Hindu law function in different fields. Their shares in the partnership depends upon the terms of the partnership; the shares of the members of the divided family in the interest of their representative in the partnership depends upon the terms of the partition deed.”

22. In Ram Laxman Sttgar Mills v. CIT, [1967] 66 ITR 613, their Lordships of the Supreme Court observed as follows (at p. 616):

“A Hindu undivided family is undoubtedly a ‘person’ within the meaning of the Indian Income-tax Act, it is however not a juristic person for all purposes, and cannot enter into an agreement of partnership with either another undivided family or individual. It is open to the manager of a joint Hindu family as representing the family to agree to become a partner with another person. The partnership agreement in that case is between the manager and the other person, and by the partnership agreement no member of the family except the manager acquires a right or interest in the partnership. The junior members of the family may make a claim against the manager for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be liable as partners From the very nature of its fluctuating composition consisting of members, some of whom may not have attained the age of majority and some may at a given time be unborn, the family as a unit is incapable of entering into any contractual relationship, and therefore into a partnership agreement contemplating the creation of mutual rights of agency among its members.”

23. The same controversy was raised once again before the Supreme Court in Agarwal and Co. v. CIT, [1970] 77 ITR 10. This was a case of registration of a partnership firm. The registration had been refused on the ground that the partnership was unlawful. That was a case where registration of firm had been refused on the ground that some partners of the assessee-firm had entered into the partnership as representatives of their respective Hindu undivided families. The adult members of those families exceeded twenty Since it had not been registered as a company under the Companies Act, the question was whether the partnership was unlawful. On a difference of opinion between Sahai and Beg JJ., Takru J. answered the question in favour of the Revenue. Before the Supreme Court it was urged on behalf of the assessee that no Hindu joint family as such can join a partnership and since it was “now well settled that when the karta of a Hindu undivided family joins a firm as a partner even if he contributes his share from out of the family funds, the other members of his family do not ipso facto become partners of that firm. So far as the partnership is concerned, he is the only partner though he may be accountable to the members of his family as regards the profits earned. According to the learned counsel, for the purpose of working out the rights and liabilities of the partners inter se, one cannot go behind the partnership deed. He is not entitled to investigate into the question as to who are beneficially interested in the partnership.”

24. On behalf of the Department, it was contended that “it was open to the Department to go behind the partnership deed and find out whether the individual who had joined as a partner had joined in his own right or as a representative of any other body. The contention further was that in view of section 4(3) of the Indian Companies Act, 1913, once the Income-tax Officer came to the conclusion that one of the partners of a firm is a representative of a joint family, he must deem that the adult members of that family are also partners of that firm and on that basis find out whether the total number of partners exceeded twenty and that if it did exceed, the Income-tax Officer cannot register the partnership”. And once again the decision in CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 (SC) was reiterated by Hegde J. in the following words ([1970] 77 ITR 10 at p. 15):

“In CIT v. Kalu Babu Lal Chand, [1959] 37 ITR 123 (SC), this court observed that it is now well-settled that a Hindu undivided family cannot as such enter into a contract of partnership with another person or persons. Several other decisions have taken the same view. No decision taking a contrary view was brought to our notice. The concept of Hindu undivided family joining a partnership presents considerable difficulty. A Hindu undivided family is a fleeting body. Its composition changes by births, deaths, marriages and divorces. Such a partnership is likely to have a precarious existence. The assumption in section 4(3) of the Companies Act, 1913, that a Hindu joint family can be a partner in a partnership appears to be based on an erroneous view of the law.”

25. Hegde J. squarely rejected the contention urged on behalf of the Revenue and held (at pp. 10, 17 of 77 ITR):

“that for the purpose of finding out as to who are all partners of a firm, one has only to look to the partnership deed and not to go behind it.”

26. The view that I have taken finds support from the decision of the Allahabad High Court in Commissioner Of Income-Tax v. London Machinery Co., [1979] 117 ITR 111, where after a comprehensive review of the case law it was laid down as follows (at p. 119):

“The question as to whether payment made to a partner is assessable as his own income or as the income of the HUF, of which he is the karta, depends on different considerations. It has no reflection or effect on the applicability of section 40(b), which covers payments made by the firm to its partners. section 40(b) is not concerned with, and hence cannot be affected by the consequential assessment of the payment made by the firm either in the hands of the karta individually or of his HUF.”

27. The Allahabad High Court decision is on all fours with the case before us. I am in respectful agreement with the view of Satish Chandra C.J when it was observed that ([1979] 117 ITR at p. 120):

“The interest paid by the firm to the partners either on the amounts brought by them from their respective HUF funds, or brought from their own individual funds, is in either case payment of interest to the partners. Both these kinds of payments are within the purview of section 40(b), and are inadmissible as a deduction in the assessment of the firm.”

28. The Delhi High Court also in Sanghi Motors…Petitioner v. Commissioner Of Income-Tax…, [1982] 135 ITR 359, held that (head note):

“bonus and interest paid to a partner could not be allowed as deductions in computing the income of the firm and that the disallowance under section 40(b) was not restricted to cases where such payments as well as the share income from the firm were assessable in the hands of the partner in his individual capacity.”

29. Upon the decisions of the Supreme Court referred to above, there can be little doubt that a karta may join a partnership as representing a Hindu undivided family, but the Hindu undivided family itself does not become a partner. The members of the Hindu undivided family may settle their scores with their karta and strangers may enforce their claim against the members of the Hindu undivided family but qua partnership only the karta is a partner. A Hindu undivided family cannot become a partner. In order to ascertain who is a partner, the partnership deed/agreement can alone be looked into. The partnership takes cognisance of only the partner—he may happen to be karta of his Hindu undivided family—but that is of no moment to the partnership firm. Any salary, interest, bonus or commission paid to a partner cannot be deducted from the total income of a firm. That is the effect of section 40(b) of the Act.

30. In deference to the submissions urged on behalf of the assessee, I must refer to some of the decisions cited at the bar on behalf of the assessee. Reliance was placed upon a Full Bench decision of the Gujarat High Court in Chhotalal & Co. v. CIT, [1984] 150 ITR 276. That was a case where a partner “V” had joined the partnership firm representing his Hindu undivided family. He had two accounts—one his individual account and the other of the Hindu undivided family which he represented as karta. The firm paid interest on advances to “V “—made other than the capital by the Hindu undivided family represented by “V” and also on advances made by “V” from his own personal account. The firm claimed deduction for the interest paid to Virani on his personal account. The Gujarat High Court observed as follows (at p. 285):

“What is said for the Revenue is that while the Revenue may take note of the fact that Shri C.S Virani really represents a HUF when it makes the individual assessment on the HUF of which he is a representative, that will have no bearing when the Revenue seeks to assess the firm to its tax. At that stage, it is said, the real character of Shri C.S Virani does not call for consideration and he need be treated only as a partner and if so treated, whatever is paid as interest to Shri C.S Virani irrespective of the character in which such payment is made is to be disallowed on account of section 40(b) of the Act. This approach would assume that, so far as the Revenue is concerned, the Revenue cannot take note of the capacity in which a person happens to be a partner of a firm. Such an approach is unsustainable in law, for whatever may be the obligations as between the partners, arising out of a contract, so far as the Revenue is concerned, it is the real character of the partner who is assessed that would be relevant for assessment purpose. If Shri C.S Virani is a partner as representing HUF, at all times the Revenue can only treat him as representing the HUF, whatever may be the rights of the other partners in the firm as against him. If so, when Shri C.S Virani as representing the HUF has advanced funds of the HUF to the firm and interest thereon is paid to the HUF, it is interest paid to Shri C.S Virani, the partner. If he advances amounts from his individual account when he is a partner as representative only of the HUF, the interest is not paid to him qua partner but as a stranger.”

31. With respect, the observations of the Full Bench of the Gujarat High Court, quoted above, are unsustainable. It is in the teeth of a catena of decisions of the Supreme Court. The fact that a Hindu undivided family is a real entity is of no moment when the firm is being assessed. The reality of the Hindu undivided family and its relations vis-a-vis with the karta will be relevant only when the question is of assessment of the Hindu undivided family but it would be absolutely irrelevant when the firm is being assessed. As for the firm, the Hindu undivided family does not exist. Since a Hindu undivided family cannot become a partner, it must be held to be non est firm. In the assessment of the firm, the real character of the partner would be entirely irrelevant. With respect, the case of CIT v. Bagyalakshmi & Co., [1965] 55 ITR 660 (SC) does not support the views propounded by the Gujarat Full Bench. The Supreme Court clearly stated that qua the partnership he (the individual) functions in his personal capacity. From that it is obvious that in the matter of assessment of a firm, a partner has no other personality. The cases of the Supreme Court where it has been held that the Revenue can look into the real character of the firm are those where the Hindu undivided family was the assessee, which is entirely different from the situation where the firm is the assessee. The conclusion of the Gujarat High Court, Full Bench, is directly in the teeth of the decision of the Supreme Court in the case of Agarwal and Co., [1970] 77 ITR 10. I am, therefore, unable to persuade myself to accept the Full Bench of the Gujarat High Court as correct.

32. The law laid down by a Bench of the Bombay High Court in Commissioner Of Income-Tax, Nasik v. Pannalal Hiralal & Co. and Co., [1984] 146 ITR 549, is equally untenable. I see neither logic nor reason in creating a distinction between a person being a partner in his individual capacity and the same person being a partner as representative of his Hindu undivided family when the firm is being assessed. The firm can take note of only an individual and not of a Hindu undivided family. So is the law laid down by the Supreme Court. The words of section 40(b) of the Act are explicit. Being in respectful disagreement with the Bombay High Court, I would prefer to fall in line with the law laid down by the Allahabad High Court and the Delhi High Court in Commissioner Of Income-Tax v. London Machinery Co., [1979] 157 ITR 111 and Sanghi Motors…Petitioner v. Commissioner Of Income-Tax…, [1982] 135 ITR 359), respectively, based as they are on a series of decisions of the Supreme Court.

33. Lastly, learned counsel for the assessee placed reliance on a Division Bench decision of the Andhra Pradesh High Court in Terla Veeraiah v. CIT, [1979] 120 ITR 502. For the reasons indicated by me, I regret I have to dissent from it. The case before us is more in accord with another decision of the Andhra Pradesh High Court in Addl. CIT v. K.G Narayanaiah Chetty & Co., [1977] 106 ITR 286, in which also payment of interest was disallowed. In this case also I am of the view that the bifurcation of one and creation of two accounts was a ruse to escape the provisions of section 40(b) of the Income-tax Act, 1961.

34. From a resume of the decisions referred to above, I have not the least doubt that the interest paid to the partners in whatever capacity it was paid to them could not be allowable deductions. The Tribunal was absolutely correct in refusing the deductions claimed by the assessee. The first question referred to us is answered accordingly.

35. The second question referred to us is whether the Tribunal was right in holding that the amount of Rs. 45,781 received from foreign parties on devaluation of the rupee was a taxable receipt in the hands of the assessee in the assessment year 1967-68. In this regard, it was contended before the Tribunal by the assessee that the amount in question was not taxable as it represented the balance with the foreign parties and since the amount outstanding did not represent the amounts in respect of sales for the year in question alone but of earlier years also. The Tribunal rejected it. The amount was received in the relevant assessment year and it could not be a capital receipt. Clearly, therefore, it was a revenue receipt and, therefore, taxable as income of the assessee. Mr. K.N Jain, learned counsel for the assessee, did not contest the correctness of the decision of the Tribunal in this behalf. In my view, Mr. Jain was fully justified in making the concession.

36. For the reasons stated above, the salary and interest paid to Ram Ratanlal Rajgarhia and Maniklal Rajgarhia had been correctly added while computing the income of the assessee-firm by applying the provisions of section 40(b) of the Act in the assessments of the firm for the assessment years 1965-66 to 1969-70. Further, the Tribunal was right in holding that the amount of Rs. 45,781 received on the devaluation of the rupee was a taxable receipt in the hands of the assessee in the assessment year 1967-68. Both the questions are thus answered in favour of the Revenue and against the assessee. The references are thus disposed of with costs. Hearing fee Rs. 250 for each tax case payable by the assessee to the Revenue. Let a copy of this judgment be transmitted to the Income-tax Appellate Tribunal in terms of section 260 of the Income-tax Act, 1961.

Nazir Ahmad, J.:— I agree.