2010 (7) TMI 1100 - AT - Income Tax

Summary

Issues involved: Disallowance of remuneration paid to a partner working in a partnership firm in HUF capacity.

Summary:
The appeal was filed against the disallowance of remuneration paid to a partner working in a partnership firm in HUF capacity. The Assessing Officer (AO) disallowed the remuneration under section 40(b) of the Income Tax Act, stating that salary can only be paid to an individual partner, not to a partner in HUF capacity. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision. However, the assessee argued that if a person is a partner in individual capacity, the profits go to the individual, but if the person is representing their HUF, the profits go to the HUF. The assessee cited precedents where remuneration paid to HUF was allowed. The Departmental Representative (DR) supported the CIT(A)'s decision, stating that remuneration can only be allowed to an individual partner.

Upon review, the Appellate Tribunal found that the authorities were not justified in disallowing remuneration to the HUF. While only an individual can be a partner in a partnership firm, an individual can represent another entity while acting as a partner. The Tribunal cited precedents where remuneration to partners representing HUF was allowed, emphasizing that the issue of allowability of remuneration stops at the point where it is paid to an individual partner. Therefore, the Tribunal allowed the claim of the assessee based on the legal position that remuneration paid to partners in their individual capacity, even if representing HUF, is an allowable deduction.

In conclusion, the appeal filed by the assessee was allowed, and the remuneration disallowance was overturned based on legal precedents and the interpretation of the Income Tax Act.

(Order pronounced on 30/7/2010)