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TMI Blog1977 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was to share with Shri Kapadia the profits,which he would earn from the partnership firm, to the extent of 11 %. The agreement in pursuance of which Shri Kapadia was to work is filed with the statement of the case as annexure B, which provides that in consideration of Shri Kapadia agreeing to help the assessee in attending to his business in the conduct of the business of the firm of M/s. Kore Bhatt, the assessee shall pay from the said firm 11% of his share of profit to the party of the other part by way of annual remuneration and the assessee will retain the balance of 24.5% to himself. A further provision made was that the amount to be received by Shri. Kapadia was to be reduced by the amount of remuneration which he would receive by way of salary from the firm of Messrs. Kore Bhatt. In the assessment proceedings for the assessment year in question, the share of the assessee in the books of the firm worked out to Rs. 90,738 and the assessee claimed that out of this amount he had paid a sum of Rs. 22,116 to Shri Kapadia and be, therefore, claimed a deduction of that amount for the purposes of the assessee. The ITO took the view that the amount paid to Shri kapadia wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm. The Tribunal further found that if it was the intention of the other partners that the assessee should not be allowed to get his share of profits in the firm unless he worked for the firm full time, they would have either agreed to Shri Kapadia being taken in as a partner in the firm or to his being allowed to work for the assessee on certain remuneration or, in the alternative, if Shri Kapadia was not found acceptable, they would have insisted on the appointment of some other person acceptable to the partners. The Tribunal took the view that the fact that the did not completely stop working for the firm, though he had entered into an agreement with Shri Kapadia to work for him, and that Shri Kapadia was already in the employment of the said firm on a certain salary and further that the nature of work done by Shri Kapadia appeared to be quite ordinary which did not require any special remuneration over and above that which was already paid by the firm to him showed that there was no commercial expediency in making the payment said to have been made by the assessee to Shri Kapadia. The Tribunal thus set aside the order of the AAC. On these facts, the question which has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t work. I used to attend to the work of the clients of Mr. M. G. Bhatt." With regard to the payment he has stated that he had drawn in all Rs. 42,000, that is, Rs. 12,000, from the firm and Rs. 30,000 from Mr. M. G. Bhatt, that is, the assessee. The other partner, Vadhelwalla, has also made a statement in which all that he has stated is that he had not given his consent orally or in writing to Mr. Bhatt employing Shri Kapadia on his behalf. One of the annexures to the statement of the case is annexure L which is styled as " The copy of the list of works with estimated cost of such works brought in by Shri K. G. Kapadia when he was in Kore and Bhatt ". This annexure contains a list of 37 names of clients whose total estimated cost of the work amounts to Rs. 54,80,800. There is no finding by any of the tax authorities that Shri Kapadia did not in fact attend to any work for and on behalf of the assessee. The reality and the bona fides of the agreement between the assessee and Shri Kapadia has not been disputed, nor has it been disputed that the assessee had in fact paid certain amounts to Shri Kapadia in pursuance of the agreement between them by which Shri Kapadia had agreed to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the clientele to such an outside expert. It is, therefore, apparent in the circumstances which we have pointed out above that the expenditure which was incurred by the assessee in the form of payment made to Shri Kapadia was expenditure incurred wholly and exclusively for the purpose of earning his share of profits. That this is the correct principle on which such a case has to be determined is clear from the very two decisions relied upon by Mr. Joshi. In Shantikumar Morarji's case [1955] 27 ITR 69 (Bom), this court pointed out that it would be open to a partner to claim a deduction provided he satisfies the taxing authority that such deduction represents a necessary expenditure, the expenditure being incuurred in order to enable him to earn the profits which are being subjected to tax. In Ramniklal Kothari's case [1969] 74 ITR 57 (SC), the Supreme Court pointed out that the share of a partner is business income in his hands for the purpose of s. 10(1) of the Indian I.T. Act, 1922, and, being business income, expenditure necessary for the purpose of earning that income and appropriate allowances are deductible therefrom in determining the taxable income of the partner. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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