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TMI Blog2012 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... commission to the aforesaid two partners, in their individual capacities amounting to Rs. 2,57,470/- each for the services rendered by them by virtue of the specialized qualification they possessed. The assessing officer held that, the said amount cannot be allowed as deduction at the hands of the firm in view of Section 40(b) of the Income Tax Act, 1961 (hereinafter for short, referred to as the 'Act'). In coming to the said conclusion, he relied on the judgment of the Apex Court in the case of Rashik Lal & Co. v. CIT [1998] 229 ITR 458/96 Taxman 16 and that a HUF cannot be a partner, in a partnership firm. The individual in a representative capacity, on behalf of the HUF, is the partner. Commission paid to him is to be treated as commission paid to the partner. A partner cannot be heard to say that he has not received commission as a partner in the firm, but in a different capacity. If he was a working partner, he could have been treated as such and remuneration or commission paid to such working partner was allowable for deduction. Explanation (4) to Section 40(b) of the Act does not specify payment of commission to an individual where he is a partner in HUF capacity. Hence, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in these two cases, the said partners are chemists, duly qualified and in other two cases they are doctors who were duly qualified, without whose services partnership firm could not carry on their business. That is how the common question of law do arise for consideration in all these cases. 5. At the time of admitting these appeals, the substantial question of law which is framed is as under: Whether on the facts and in the circumstances of the case, the commission payable individually to Dr. L.H. Bidri in his individual capacity by the appellant firm are an inadmissible item of expenditure while computing the income of the firm? 6. The learned counsel for the appellant contended that, in the partnership firm though individual names are mentioned, it is clear from the description, they were representing the HUF as karta. Therefore, the HUF is the partner in the firm and not the individual. The individuals are paid commission for the specialized services rendered by them. If such remuneration was being paid to an employee with that qualification, that was eligible for deduction under Section 37 of the Act. If that is so, the commission paid to these individuals who possess s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been interpreted to mean that every partner is bound to attend diligently to the business of the firm. For doing his duties, he cannot charge his copartners any sum or remuneration, whether in the shape of salary, commission or otherwise, on account of the trouble taken by him in conducting the partnership business. There, however; can be a special contract to the contrary in which case, the provisions of that contract will prevail. Section 40(b) of the Income-tax Act, 1961, will apply, even where there is such a special contract. Any commission paid by a firm to its partner will not be permitted as deduction from the business income of the firm. If a claim is made by a partner that he is representing a Hindu undivided family or any other body of persons, then the position in law will not be any different. The Hindu undivided family is not and cannot be a partner in a partnership firm. The remuneration or the commission that is paid to the partner cannot be claimed to be a remuneration or commission paid to the Hindu undivided family. The partner may be accountable to the family for the monies received by him from the partnership. But, in the assessment of the firm, the partner c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituting the firm. The Partnership Act, 1932 contains various provisions regarding the relationship among partners. All these provisions relating to the mutual rights and liabilities are only applicable to the individual partners who are members of the firm. A partner does not act in a representative capacity in the partnership. He functions in his personal capacity like any other partner. The provisions of the Partnership Act and the Income-tax Act relating to partners and partnership firms will apply in full force in respect of such a partner. The application for registration of a firm has to be made under Section 184 of the Income-tax Act. The very fact that individual shares of the partners have to be specified and that such partners must personally sign the partnership deed and also the application for registration go to show his position is that of an individual, though he may be representing certain interest. The firm has nothing to do with such interest he represents. Although a partnership is not a legal entity, it has been treated as an independent unit for assessment under the Income Tax Act. The law has to be taken as it is. Section 40(b) of the Income Tax Act applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the partners during the previous year exceeds the aggregate amount computed as hereunder:- (a) on the first Rs. 3,00,000 of the book-profits or in case of loss Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more. (b) on the balance of the book profit At the rate of 60 per cent 12. A partner is not entitled to receive remuneration for taking part in the conduct of the business under Section 13 of the Partnership Act. This rule is subject to the contract to the contrary. In other words, if there is a contract between partners to receive remuneration for taking part in the conduct of the business, this rule is not applicable. Section 40(b) of the Income Tax Act recognizes this rule. It provides for making payment to a partner subject to the condition mentioned therein being fulfilled. The said conditions are :- (i) Is the partnership deed i.e., contract between the parties should provide for such payment. (ii) The person to whom it is paid should be a working partner. (iii) Such payment should be within the limits prescribed in Section 40(b)(v). 13. If all these conditions are fulfilled, a partner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible in law. If the legislature thought it fit to expressly state that, interest paid to a partner in his individual capacity is deductible as an exception and the same interest paid to him in a representative capacity is not deductible, and the law do not extend the said benefit to other payments such as remuneration, bonus or salary, it is clear that, the legislature had no intention of extending such benefit. It is settled law, while interpreting the statutory provisions, not only the court has to keep in mind the express words used in the Section, it ought to keep in mind what is not expressed expressly. If the legislature in its wisdom do not expressly extend the said benefit to the salary, remuneration, bonus, etc., the courts by interpreting the same cannot extend the said benefit, when the same is deliberately omitted by the legislature. Otherwise, it amounts to re-writing the Section by the Court, which is impermissible. In fact, this is precisely what the tribunal has held after referring to all these judgments and the statutory provisions. There is no merit in the said contention also. 16. In that view of the matter, we do not see any error committed by the tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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