TMI Blog2005 (9) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the Assessing Officer on account of remuneration paid to the partners, Shri. B.M. Shah and Shri S.G. Prabhu amounting to Rs. 85,085 and Rs. 28,361 respectively, who are representing their HUF's as Karta, as it is expressly not allowable under the provisions of Explanation 4 to sub-section (v) of section 40(b) as they are not working partners in their individual capacity. 2. On the facts and in the circumstances of the case, the CIT(A) failed to appreciate that as per the provisions of Explanation 4 to sub-section (v) of section 40(b) which clearly mentions that the "working partner" means 'individual who is actively engaged in conducting the affairs of the business or profession of the firm in which he is a partner; whereas, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to be assessed in the hands of the partners only. The Income-tax Act itself has not supporting the assessee's representative's interpretation. There is a contractual relation amongst the partners and Income-tax Law allows the payment of Salary as per the norms prescribed in section 40(b) to its partners, and Explanation 4 to section 40(b) of the Income-tax Act 1961, strictly allows the payment to individual". 3. The issue was carried before the first appellate authority, who has discussed the provisions of law and thereafter arrived at the conclusion that the two individuals who have received the remuneration on behalf of their respective HUF's had admittedly looked after the affairs of the appellant firm. He has also mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the Karta in his individual capacity. This issue was considered as per the old section by the Hon'ble Delhi High Court in the case of Sanghi Motors v. CIT [1982] 135 ITR 359, referred by Ld. D.R. 5. From the side of the respondent-assessee, it was stated at the outset that the amended provision have duly been considered by the Tribunal and the issue is now settled in favour of assessee. Decisions cited are as follows:- (1) ITA No. 381/PN/2001, order dated 16-7-2002, assessment year 1995-96, in the case of M/s. Tarachand Bhaichand Phade, Pandharpur, Pune Bench. (2) ITA Nos. 365, 366 and 367/PN/1999, order dated 25-7 2001, assessment years 1993-94, 1994-95 and 1995-96, in the case of M/s. Tarachand Bhaichand Phade, Pandharpui, Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was duly authorized by a properly executed partnership deed; as prescribed under the amended provision of the Act. An amendment took place in section 40(b) of the Income-tax Act and according to the new substituted section in case of any firm assessable as such, certain amounts shall not be deducted for and from the assessment year 1993-94 in computing the income of any payment of remuneration to any partner who is a working partner duly authorized and in accordance with the terms of the partnership if the amount exceeds the aggregate amount prescribed in section 40(b)(v) of Income-tax Act. In other words, on a careful reading of section 40(b) along with its explanations, it may, broadly speaking be concluded that any payment of remun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karta represented an HUF in the firm i.e. in a representative capacity, is nothing but payment to an individual, hence in view of the clear intendment contained in old section 40(b) it was disallowed. The Hon'ble Court has observed in Rasik Lal Co.'s case that a firm is compendious way of describing the individuals constituting true firm. An HUF directly or indirectly cannot become a partner of the firm because the firm is an association of individuals. Under Hindu law, not all the members of the joint family but only such of its members, have in fact enter into the partnership offered and become partners. Due to this reason, it was considered that in view of section 13 of the Partnership Act, a partner f is not entitled to receive any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership, a partner function in his personal capacity, however, qua the third parties, he is responsible in his representative capacity. Due to the abovesaid interpretation the result was against the assessee, however, now the law has taken a U-turn so the ratio laid down in those precedents as on date supports the claim of the assessee. To make it more clear, the ratio laid down was that qua the firm a partner is always an individual may be a Karta representing an HUF. The old section had prohibited the deduction of salary to partner so those decisions were against the assessee-firm, because in those years the claim was in respect of payment to Karta of HUF alleged to be not an individual partner, which was negated. Those very deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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