TMI Blog1992 (1) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... rthy, R.V. Subramanian, R.V. Ramanathan and V. Brahanayaki. The three men represented their respective Hindu undivided families in the firm. They were paid salary of Rs. 1,000 each in their individual capacity. That amount was assessed in their hands in the status of 'Individual'. In computing the income of the previous year ended 31-3-1982, corresponding to the assessment year 1982-83, the Income-tax Officer was of the opinion that the provisions of section 40(b) of the Income-tax Act applied to the salaries paid to these three partners and be accordingly added back the sum of Rs. 36,000. On appeal, the Commissioner of Income-tax (Appeals) noted that the salary being assessed in the bands of the partners in their individual capacity and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation introduced to section 40(b) recognised the representative capacity of the person who was a partner in a firm and on that basis the payment made to him in a different capacity could not be disallowed under section 40(b). It was also argued that even though different views bad been taken earlier, subsequent legislation must be taken into account in deciding whether those decisions could still be applied. It was pointed out that there are already two decisions of the High Court holding that the provisions of section 40(b) were not applicable in similar situation and, therefore, the claim of the assessee should be upheld. 6. On the other hand, it was pointed out on behalf of the Revenue that the Explanation to section 40(b) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntering in a partnership, namely, having a share of his own in the profits of the business, would have been defeated. However, an almost complete transformation in the legal position was brought about by the Hindu Gains of Learning Act with the result that the skill and labour of the coparcener would be his own property and the income derived would not belong to the H.U.F. Thus the assessment of the salary income derived by the three individuals in their individual capacity is in conformity with the principles laid down by the Supreme Court. 8. Now section 40(b) provides that in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm shall not be deducted in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of any other person (such member and the other person being hereinafter referred to as 'member in a representative capacity' and 'person so represented', respectively),--- (i) interest paid by the association or body to such individual or by such individual to the association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the association or body to such individual or by such individual to the association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so represented to the association or body, shall be taken into account for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect. The Andhra Pradesh has taken the view in the case of N.T.R. Estate and the Punjab and Haryana High Court in the case of Hindustan Steel Forgings v. CIT [1989] 179 ITR 280 that the Explanation is clarificatory and applies to assessments even prior to the introduction. Other High Courts such as the Allahabad High Court in CIT v. U.P. Iron Stores [1989] 180 ITR 296 have taken the view that it is prospective. The Supreme Court has observed with reference to the Explanation inserted in section 64 of the Income-tax Act that even a provision which is not retrospective in its operation serves as a legislative exposition of the import of that Explanation [see CIT v. P. Doraiswamy Chetty [1990] 183 ITR 559 (SC)]. The Himachal Pradesh High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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