1983 (10) TMI 144 - AT - Income Tax

Summary

Issues:
1. Deductibility of salary claimed by HUFs as remuneration paid to Karthas.
2. Interpretation of partnership deed regarding payment of salary to partners.
3. Applicability of Supreme Court decisions on income attribution in HUFs.
4. Assessment of share income inclusive of salary in the hands of HUFs.

Analysis:

1. The appeals consolidated for convenience revolve around the deductibility of a salary claimed by HUFs as remuneration paid to their Karthas. The Revenue contended that the claimed salary of Rs. 7200 is not deductible expenditure. The ITO disallowed the deduction, stating that the payment by the family to the Kartha could not be considered proper remuneration. However, the AAC allowed the appeals, noting that the Karthas had rendered specific services to the firm, and the HUF funds were not adversely affected.

2. The Department argued that the share income of the HUFs, represented by the Karthas in the firm, should not allow any deduction for salary paid to partners. However, the ITAT disagreed, emphasizing that the partnership deed provided for the payment of salary to partners for special attention to the firm's affairs. The Tribunal distinguished a previous decision and highlighted that the salary was paid by the firm to the partner, not the HUF to the Kartha, supporting the assessee's case for deduction.

3. The ITAT further analyzed Supreme Court decisions, emphasizing the distinction between income of the HUF and individual coparcener. The Court's stance was that if the remuneration is for services rendered by the individual coparcener, it is their personal income. In this case, the remuneration paid to partners was for their individual service, not a mode of profit apportionment, aligning with the assessee's position.

4. Regarding the assessment of share income inclusive of salary in the hands of HUFs, the ITAT clarified that under partnership law, partners have individual rights to profit shares, including any salary disallowed under specific provisions. The salary paid to partners by the firm represents their personal income and should be excluded from the share income for HUF assessment. Therefore, the ITAT upheld the AAC's finding that the salary paid to the Kartha cannot be included in the HUF's assessments.

In conclusion, the Revenue's appeals were dismissed, affirming the deductibility of the salary paid to the Karthas as claimed by the HUFs.