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TMI Blog1984 (3) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO added Rs. 10,000 said to be paid as remuneration to Shri N. Balakrishna, one of the partners of the firm, having 7.5 per cent share. Obviously, this is a disallowance made under section 40(b) of the Act. As against the disallowance the assessee firm went in appeal before the AAC. It was contended before him that Shri N. Balakrishna is a cine artiste and had rendered professional service in that capacity in one of the pictures produced by the firm which is doing business as cinematographic film producers. The payment of Rs. 10,000 constitutes a legitimate business expenditure and even if some other cine artiste in the place or Shri N. Balikrishna happened to enact, he had to be paid and the payment Would have been allowed as legitimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no stipulation in the partnership deed that the artistic or histrionic talents of Shri N. Balakrishna should be spared by him to the partnership firm and that he would not be remunerated for the same. It was further contended that the payment of Rs. 10,000 comes under business expenditure for specific work of an artiste not connected with his position as a partner and, thus, it is not a remuneration disallowable under section 40(b) as Shri N. Balakrishna has not rendered services as a partner. Shri C.V.K. Prasad, the learned counsel for the assessee submitted two-pronged arguments. Firstly, he contended that unless the amount disallowed constitutes, a payment out of the income of the assessee-firm, it cannot be disallowed. Secondly, he cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Madras High Court held that before application of section 10(4)(b) two requirements must be satisfied. The first is that the income must be the income of the firm. The second is that out of the said income the payment must be made to a partner. Their Lordships found that the evil sought to be curtailed by enacting the provision of section 10(4)(b) is to prevent diversion of profits of a firm to the hands of its partners. Ultimately the Madras High Court held as per the head note of the decision as follows : ". . . In this case, the company was carrying on an independent business or distribution of films produced by various persons including the assessee-firm and hence the income which the company received in the course of carrying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40(b). If an authority is needed, it is found in Heastie v. Veitch Co. [1934] 2 ITR 456 (CA). Under the said authority Sampath Iyengar in his book Law of Income-tax, Vol. 2, Seventh edn. revised by Justice S. Ranganathan, had to say the following Again, payments made to a partner for something altogether unconnected with the partnership business, for example, as remuneration due on an independent contract, would not come under this clause. If, for instance, in a partnership doing hotel business, one of the partners who is a wine merchant should supply wine, the cost of the wine supplied would be a deductible expenditure . . . ." Ultimately, it was argued that a partner acting in a picture produced by the assessee-firm and getting re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des fully and completely. We are of the view that the Delhi High Court decision in the case of Sanghi Motors, relied upon by the learned departmental representative, is rendered in the case of interest payment to HUF while the individual is a partner in his individual capacity. However, we have already pointed out that the Andhra Pradesh High Court in K. Krishnaiah Chetty Sons' case had taken a contrary view on the subject and we are bound to follow the Andhra Pradesh High Court decision over that of the Delhi High Court. Further, we are inclined to agree with the arguments advanced on behalf of the assessee-firm. We are of the view that the remuneration received by Shri N. Balakrishna is not from out of the income of the firm. Suffice it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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