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Assessment of salary paid to a partner in a representative capacity under section 40(b) of the Income-tax Act, 1961. Analysis: The judgment pertains to the assessment years 1984-85 and 1985-86, involving a partnership firm that paid salary to a partner representing his Hindu undivided family. Initially, the payment of salary was disallowed under section 40(b) of the Income-tax Act, 1961. However, on appeal, the decision of the Assessing Officer was reversed, leading the Revenue to appeal to the Tribunal. The Tribunal, relying on a previous judgment, affirmed the claim of the assessee, prompting the reference of a legal question regarding the disallowance of salary under section 40(b) to the High Court. In the case of CIT v. Mangalore Ganesh Beedi Works, the High Court had previously held that interest payments to Hindu undivided families, where partners were kartas, were not disallowable under section 40(b) of the Act. However, the court noted that the earlier judgment did not address the specific issue of salary payment to a partner in a representative capacity. The court referred to a previous decision in N. M. Anniah and Co. v. CIT, emphasizing that a Hindu undivided family cannot enter into a partnership, and it is the karta who is recognized as the partner when entering into a partnership on behalf of the family. The court distinguished the previous judgment in Mangalore Ganesh Beedi Works, as it related to interest payments, not salary. Another unreported order was brought to the court's attention, where a similar question was answered in favor of the assessee. However, the court found that the order in question did not consider the binding precedent of N. M. Anniah and Co. Consequently, the court held that the salary paid by the firm to its partner, even in a representative capacity, was liable to be disallowed under section 40(b) of the Act, based on the clear legislative intent. In conclusion, the court ruled that the salary paid to the partner was disallowable under section 40(b) of the Income-tax Act, answering the legal question against the assessee and in favor of the Revenue. The court deemed the earlier order as per incuriam and not a binding precedent due to the failure to consider relevant legal precedents.
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