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Interpretation of section 40(b) of the Income-tax Act, 1961 regarding the deductibility of commission paid to a proprietary concern of one of the partners of the assessee-firm. Analysis: The case involved a dispute regarding the deductibility of commission paid by the assessee to a proprietary concern owned by one of the partners of the assessee-firm. The Income-tax Officer disallowed the payment of commission invoking section 40(b) of the Income-tax Act, 1961, which deals with the payment of salary, bonus, commission, or remuneration in the case of a firm assessable as such. The Appellate Assistant Commissioner upheld the Income-tax Officer's decision, leading the assessee to appeal to the Tribunal. The Tribunal held that the payment of commission to the proprietary concern of the partner was not in violation of section 40(b) of the Act. The Tribunal directed the deletion of the amount of commission added back by the Income-tax Officer from the total income of the assessee. The applicant, dissatisfied with the Tribunal's decision, filed applications under section 256(1) of the Act, which were rejected, leading to further recourse to section 256(2) of the Act in the High Court. During the proceedings in the High Court, the counsel for the non-applicant argued that the Tribunal had taken a consistent view in similar cases for subsequent years, which had attained finality. The counsel emphasized the importance of maintaining uniformity and consistency in decisions. The High Court, after considering the arguments and legal precedents, concluded that the Tribunal was correct in holding that the commission paid to the proprietary concern was deductible in computing the total income of the assessee, and the provisions of section 40(b) of the Act were not applicable in this case. The High Court relied on legal principles established in previous cases, such as the importance of considering the substance of transactions over their form in revenue cases. Additionally, the court emphasized the need for finality in legal proceedings and the mitigation of hardships caused by legislative ambiguities. Ultimately, the High Court ruled in favor of the assessee, answering the question in the affirmative and deciding the reference application without any orders as to costs.
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