TMI Blog2002 (5) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... esenting Pawan Kumar Sethi, HUF. This deed was executed on 1-4-1992. According to clause (8) of the partnership deed, the parties of second and third part were working partners and they were entitled to remuneration at rate as may be agreed upon between the partners from time to time. In view of this clause, these two partners were paid remuneration and the same was claimed as deduction. According to the Assessing Officer, payment of remuneration is allowed only to a working partner which has been defined in Explanation 4 to section 40(b), according to which, working partner means an individual, who is actively engaged in conducting the affairs of business or profession of the firm of which he is a partner. On the basis of this provision, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Rival submissions of the parties have been considered carefully. The question for consideration is as to who is the partner. In other words, whether HUF or the person representing the HUF is the partner in the eye of law. No relevant case law has been cited by either party to assist the bench to resolve this controversy. At this stage, it would be useful to refer certain relevant provisions of the Income-tax Act, 1961 (in short 1961 Act) as well as Indian Partnership Act, 1932 (in short 1932 Act). According to section 2(23) of the 1961 Act, 'firm', 'partner' and 'partnership' have the meanings respectively assigned to them in the Indian Partnership Act, 1932; but the expression 'partner' shall also include any person, who, being a mino ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to become partners. There is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual member of another Hind undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families." 5.The perusal of the above observations clearly shows that HUF by itself can never be a partner and in the eye of law, it is only an individual member representing an HUF, who can become partner in a partnership firm. Accordingly, it is to be held that it is the individual who is the partner in the eye of law though such individual may represent his HUF. No doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in conducting the affairs of the business or profession of the firm of which he is a partner." 7. It may be mentioned that these provisions were substituted by Finance Act, 1992 effective from assessment year 1993-94. Prior to the substitution, the remuneration paid to the partners was absolutely prohibited and disallowable irrespective of the status or capacity of the partner. However, from assessment year 1993-94, the remuneration to the partners is disallowable only in certain situations where: (i) payment is made to non-working partners; and (ii) where such remuneration is not authorised by the terms of the partnership deed. 8. There are certain other situations where remuneration to partners is disallowable under sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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