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Assessment of increased salary in the hands of HUF or individual partners, reasonableness of salary increase, diversion of profits through salary distribution. Analysis: The case involved the question of whether the increase in salary received by individual partners from a firm should be assessed in the hands of the Hindu Undivided Family (HUF) or the individual partners. The firm had paid remuneration to the partners, and a supplementary deed increased the salary from Rs. 9,000 to Rs. 24,000 per year. The Assessing Officer (AO) disallowed the increased salary, considering it a devise to distribute profits to the HUFs. The Tribunal observed that there was no evidence of qualitative or quantitative enhancement in services to justify the salary increase. The turnover of the firm had increased significantly, but the Tribunal found the salary increase unreasonable, questioning its justification based on turnover alone. The Tribunal did not consider the turnover figures but noted the lack of salary increase for several years prior. The senior counsel for the assessee argued that the Tribunal erred in deeming the salary increase unreasonable and emphasized the need for authorities to determine the reasonableness of the salary paid. The Tribunal's order assumed the salary as genuine without addressing whether it was a part of profit distribution. The High Court directed the matter back to the Tribunal for a fresh hearing to establish if the salary increase was genuine or part of distributed profits. The Court cited a Supreme Court decision to support the argument that salary paid to a partner should not be treated as HUF income. The Tribunal was instructed to rehear the appeal, allowing all contentions to be presented and to make a decision in accordance with the law promptly.
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