M/S BRIJ MOHAN DAS LAXMAN DAS vs COMMISSIONER OF INCOME-TAX, AMRITSAR

The Supreme Court interpreted Clause (b) of Section 40 of the Income Tax Act, which prohibits the deduction of certain payments made by a firm to its partners. The Court held that interest paid to a partner representing a Hindu Undivided Family (H.U.F.) on amounts deposited in an individual capacity is not disallowed under this clause. The ruling clarified that such interest payments are permissible as they do not contravene the provisions of the Income Tax Act, thus allowing the assessee's claim for interest on the credit balance in the partner's individual account.