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TMI Blog1989 (5) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the assessee before the Appellate Assistant Commissioner that the provisions of section 40A of the Act were applicable and had overriding effect on section 40(b) did not prevail and the assessee remained unsuccessful. Their further appeal before the Income-tax Appellate Tribunal, Chandigarh, also remained unsuccessful. The Tribunal came to the conclusion that section 40(b) and section 40A of the Act operate in different fields and that there was no conflict as was attempted to be made on behalf of the assessee. At the instance of the assessee, the Tribunal has referred the following questions for the opinion of this court : "1. Whether the Tribunal has been in error in holding that the provisions of sections 40(b) and 40A(2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he argument on behalf of the assessee is that after the enactment of section 40A with effect from April 1, 1968, it contains a non obstante clause saying that this section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the heading "Profits and gains of business or profession" and, therefore, section 40A will have overriding effect even on section 40 including clause (b) thereof Hence, section 40(b) is not to be considered in the wake of section 40A. The argument raised on behalf of the assessee would be correct only to the extent that wherever amounts are covered by section 40A, to that extent it will override the provisions of action 40, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in clause (b), are allowable which are found to be not excessive and unreasonable and the excessive or unreasonable portion has to be disallowed. Further, we have to consider as to what kind of expenditure is dealt with in clause (a) of sub-section (2) of section 40A of the Act. It has to be in regard to the fair market value of the goods, services or facilities for business purposes. Section 40A(2)(a) came up for consideration before the Karnataka High Court in T. T. Pvt. Ltd. v. ITO [1980] 121 ITR 551, and Venkataramaiah J., at pages 567 to 570 of the reported judgment, considered the scope of the aforesaid provision in view of section 40 and gave the following verdict (at p. 568) : "The goods, services and facilities referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are of the opinion that such a matter is not covered by section 40A and would be covered only under section 40. Since salary has been paid by the assessee-firm to its partners, the same has to be disallowed by virtue of clause (b) of section 40 of the Act and the Tribunal and the officers below were right in disallowing the entire salary paid to the partners of the firm. The Tribunal, in its order, made the observations that by virtue of section 40A, the Income-tax Officer may restrict or modify a claim of payment of salary to a partner depending upon the extent and nature of his services but in spite of such modified payment, the same has to be disallowed keeping in view the provisions of section 40(b) of the Act. In this respect, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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