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TMI Blog1977 (1) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... ary of Rs. 4,800 each per year was paid to them by the firm for the management services rendered by the said partners in their individual capacity to ther firm. The AAC observed that in respect of the last year s assessment, the AAC, B Range has held in his order in ITA No. 90/73-74 dt. 16th Jan., 1974 that in the absence of any material to that effect in records, it cannot be said that salary payments made were in consideration of their capital investments in the firm. After referring to certain discussion of the Supreme Court, the AAC allowed the assessee s appeal. Aggrieved by the said order of the AAC, the Revenue has filed this appeal before us. 2. The learned Departmental Representative contended that the AAC erred in deleting a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hettiar and Shri D. Ramu Chettiar in their individual capacities for services rendered. He, therefore, strongly urged that the payment of salary is not hit by the provisions of s. 40(b) of the Act. 4. We have carefully considered the rival submissions. It is common ground that Messrs. V.P. Subbaraya Chettiar and D. Ramu Chettiar, though they represented their respective HUF figured as partners in the assessee firm. It is also common ground that the above two persons namely V.P. Subbaraya Chettair and D. Ramu Chettair, Received a salary of Rs. 4,800 each per year from the assessee firm for the services rendered to the firm by them in their individual capacity. The point for determination is whether such payment of salary is liable to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , corresponding to s. 40(b) of the IT Act, 1961: "It is pertinent to note that this clause prohibits the deduction of a salary or remuneration paid to a partner which could only be for certain services rendered by him. Remuneration or salary is paid to any person for performance of some services and not gratis. A partner is in the same position in this behalf. Notwithstanding this, the Act disallows the deduction from the gains and profits of the partnership. Therefore the fact that a partner is remunerated for the services rendered by him would not take it out of this sub-section having regard to the specific language employed in the sub-section. The sub-section does not make any distinction between a salary paid to a partner as a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een individuals. If there is a fiduciary capacity between the individual and the family that he represents, it is a matter entirely between that individual and his family. The firm as such had nothing to do with it." The Karnataka High Court in the case of N.M. Anniah Co. vs. CIT, Mysore considered the question whether s. 40(b) would apply to the payments of the salary made by a firm to a partner in that case, where also, it was pointed out that the assessee had raised the contention that the payment of salary was made to one of the partners, who was the karta of his HUF and that such payment of salary should be deducted from the income of the firm. Further reliance was placed by the assessee in that case on the decisions of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of salary made by the firm to any partner is not deductible is absolute in its terms and it is applicable to all cases irrespective of the character in which a person has become a partner of a firm. The principle enunciated in Dhanwatey s case and the principle underlying s. 40(b) of the Act are entirely different from one another. In the first case the reason for treating the remuneration received by a karta, which is related to the family funds contributed as capital of the firm, as part of the income of the HUF and as between him and the other members of the family, he would be accountable for all profit or remuneration received by him. The object of enacting s. 40(b), however, is entirely different. Ordinarily, and salary paid to a part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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