1983 (8) TMI 151 - AT - Income Tax

Summary

Issues:
1. Allowability of deduction for yearly allowance paid by a firm to the Kartha of HUF in the assessment of HUF.

Detailed Analysis:
The appeal involved a dispute regarding the deduction of a yearly allowance of Rs. 5,000 paid by a firm to the Kartha of an HUF. The AAC allowed the deduction, but the ITO rejected it. The main issue was whether the allowance paid by the firm to the Kartha of HUF is allowable as a deduction in the assessment of the HUF.

The assessee, an HUF, derived share income from various firms. The ITO initially disallowed the claim for deduction of Rs. 5,000 paid by a firm to the Kartha. The AAC, on appeal, concluded that the payment was salary for services rendered by the Kartha to the firm and not related to the investment made by the HUF in the firms. The AAC relied on a Supreme Court decision and allowed the claim of the assessee.

The departmental representative argued that the remuneration was paid for services to the firm and should be treated as share income of the partner. He contended that the income was earned by utilizing joint family assets and should be assessed as such. He highlighted the provisions of the Income Tax Act in this regard.

The representative of the assessee emphasized that the remuneration was paid for services rendered by the Kartha and should not be disallowed based on specific provisions of the Income Tax Act. He supported the AAC's decision.

The Tribunal observed that the case of a firm is different from that of a company, considering the nature of partnership agreements and capital contributions. The Tribunal analyzed the specific facts of the case and the provisions of the Income Tax Act. It held that the yearly allowance paid to the Kartha by the firm was assessable in the hands of the HUF as share income, rejecting the claim for deduction.

In conclusion, the Tribunal reversed the AAC's decision and upheld the ITO's order, disallowing the deduction claimed by the assessee. The appeal by the revenue was allowed, settling the dispute over the allowance paid by the firm to the Kartha of the HUF.