1993 (10) TMI 132 - AT - Income Tax

Summary

Issues:
Whether commission paid by the assessee-firm to a partner representing his HUF is deductible while computing total income of the firm.

Analysis:
The dispute in the appeal was centered around the deductibility of a commission amounting to Rs. 11,959 paid by the assessee-firm to a partner representing his HUF. The Assessing Officer disallowed the deduction, adding it back to the firm's income. However, the CIT (Appeals) took a different view, stating that although the Explanation to section 40(b) specifically mentioned interest payments, the principle could be extended to salary and commission as well.

Upon reviewing the arguments and relevant material, the tribunal disagreed with the CIT (Appeals). They noted that while the Legislature had made amendments regarding the allowability of interest payments in section 40(b), no changes were made concerning other items like commission and salary. The tribunal emphasized that services for which salary, commission, or remuneration is paid always belong to the individual, unlike interest paid on money that may belong to the partner individually or to his HUF.

Furthermore, the tribunal referenced various court decisions that highlighted how a firm recognizes only the individual as a partner, regardless of whom the individual represents. This led to the conclusion that regardless of whom the partner represented, in the firm's eyes, he was a partner as an individual. As the word "commission" was not explicitly mentioned in the Explanations to section 40(b), the tribunal held that it could not be read into the provision based on the applicability of the principle to interest payments.

In light of the above analysis, the tribunal reversed the decision of the CIT (Appeals) and disallowed the Rs. 11,959 paid as commission to the partner, despite his representation of his HUF in the firm. The cross-objection filed by the assessee in support of the CIT (Appeals) was dismissed, ultimately allowing the appeal filed by the revenue and dismissing the cross-objection filed by the assessee.