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TMI Blog2004 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act" for opinion to this court: "1. Whether, on the facts and in the circumstances of the case, the salary allowed to Yadav Kishan Goel was addable under section 40(b) of the Income-tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee is not entitled for the claim under section 80HH of the Income-tax Act, 1961?" The following two more questions of law have been referred for the assessment years 1977-78 and 1978-79: "3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the claim under section 80J was rightly disallowed to the assessee? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the assessee-firm, while running the cold storage plant, was neither manufacturing nor producing any article?" Briefly stated the facts giving rise to the present references are as follows: The applicant had paid salary of Rs. 12,000 to its partner, Sri Yadav Kishan Goel, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1997] 224 ITR 753 (SC); and (4) CIT v. Trilok Nath Mehrotra [1998] 231 ITR 278 (SC). Shri A. N. Mahajan, learned counsel for the Revenue, submitted that even though Sri Goel was representing his Hindu undivided family as a partner in the applicant-firm the salary which was paid to him was on account of his individual contribution. The firm only recognises the individual as a partner even though he may be the representative of any other person. Thus, the provisions of section 40(b) of the Act would be attracted in respect of the salary paid to an individual whether he represents himself or any other person in a firm as partner. He relied upon the following decisions: (1) Roshik Lal and Co. v. CIT [1998] 229 ITR 458 (SC); (2) National Wire Manufacturing Co. v. CIT [2002] 253 ITR 496 (Guj); (3) Rm. Appavu Chettiar Sons v. CIT [2002] 256 ITR 289 (Mad); (4) Tola Ram Sons Dal Mill v. CIT [2003] 130 Taxman 602 (All); (5) Industrial Linings v. CIT [2003] 263 ITR 315 (Guj); and (6) CIT v. Golden Touch [2003] 263 ITR 261 (Mad). Having heard learned counsel for the parties, we find that it is not in dispute that Shri Yadav Kishan Goel was a partner in the applicant-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the kartas of these Hindu undivided family assessees cannot be included in the share income of the respective Hindu undivided families." Thus the court came to the conclusion that the salary was earned by the karta not on account of any detriment to the family assets but in consideration of his personal services and, therefore, the salary paid by the firm to the partner was not assessable as income of the Hindu undivided family on whose behalf he was a partner in the firm. In the case of Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825, the apex court was considering the question as to whether interest paid on the deposit made by a partner in his individual capacity while being a partner as karta representing his Hindu undivided family was deductible under section 40(b) of the Act or not. The apex court had held as follows: "Clause (b) of section 40 is based upon and is a recognition of the basic nature of the relationship between a firm and its partner. In CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292 this court observed: 'Here the first thing that we must grasp is that a firm is not a legal person even though it has some attributes of personality. Partnership is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be heard to say that he has not received the commission as a partner of the firm, but in a different capacity..... 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. If any remuneration is paid or a commission is given to a partner by a partnership firm, section 40(b) will apply even if the partner has joined the firm as a nominee of an Hindu undivided family. The Hindu undivided family or its representative, does not have any special status in the Partnership Act... The assessment of a firm will have to be made strictly in accordance with the provisions of the Income-tax Act. The law has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003] 263 ITR 261. This court in the case of Tola Ram Sons Dal Mill [2003] 130 Taxman 602 has also followed the decision of the Madras High Court in the case of Rm. Appavu Chettiar Sons [2002] 256 ITR 289. We are in respectful agreement with the aforesaid decisions and, therefore, hold that in view of section 40(b) of the Act the salary allowed to Yadav Kishan Goel was not allowable as deduction while computing the income chargeable under the head "Profits and gains of business or profession". So far as the second question is concerned, it may be mentioned here that the hon'ble Supreme Court in the case of Delhi Cold Storage Pvt. Ltd. v. CIT [1991] 191 ITR 656, has held that in common parlance, "processing" is understood as an action which brings forth some change or alteration of the goods or material subjected to the act of processing and in a cold storage, vegetables, fruits and several other articles which require preservation by refrigeration are stored. While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a "process" within the meaning of section 2(7) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking, in order to be entitled to the benefit of section 80J should fulfil all the four conditions laid down under the sub-section. Clauses (iii) and (iv) would make it very clear that the cold storage plant or plants should be able to manufacture or produce articles and they should engage ten or more workers in a manufacturing process if it is run with the aid of power. The Tribunal has found that there were no separate employees in the first and second new chambers and it is difficult to hold that the assessee had engaged ten or more workers in the first and second chambers constructed by it, therefore, the applicant was not able to prove that it had fulfilled the conditions in sub-sections (4)(iii) and (iv) of section 80J of the Act. In view of the findings recorded by the Tribunal that the applicant has not been able to fulfil the conditions of clauses (iii) and (iv) of section 80J(4) of the Act, it is not entitled for deduction under section 80J of the Act. Apart from it, this court in the case of CIT v. Mahalaxmi Ice and Cold Storage [1996] 84 Taxman 493 has held that a cold storage is not entitled to deduction under section 80J of the Act. We are in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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