2003 (3) TMI 52 - HC - Income Tax

Whether, Tribunal was right in law in holding that the remuneration paid by the assessee to its partner representing a Hindu undivided family can be disallowed under section 40(b) of the Income-tax Act, 1961, in the light of the Explanation 4 to the section by the Amendment Act? - The remuneration paid to the individual partners who are working partners is not to be disallowed on the sole ground that such partners were nominees of their Hindu undivided families. Even as the Hindu undivided family cannot claim that remuneration paid to the partners representing it, is remuneration paid to the Hindu undivided family, so also the Assessing Officer cannot regard to the remuneration paid to such partner, who is also a working partner, as remuneration paid to the Hindu undivided family - The question raised before us by the Revenue is required to be and is answered in favour of the assessee.

Summary

The High Court of Madras ruled in favor of the assessee regarding the disallowance of remuneration paid to partners representing Hindu undivided families under section 40(b) of the Income-tax Act, 1961. The court held that such partners cannot be treated as representing the Hindu undivided family for the purpose of disallowance. The judgment was delivered by Judges R. Jayasimha Babu and K. Raviraja Pandian. The appeal filed by the Revenue for the assessment year 1994-95 was dismissed.