TMI Blog2011 (8) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity but he is a partner in the capacity of representative of HUF of which he is a karta and for this reason, the Revenue has rejected the claim of the assessee. - in view of the judgment of Hon'ble apex court rendered in the case of Rashik Lal & Co. (1997 -TMI - 5629 - SUPREME Court), deduction u/s 40(b) allowed - Decided in favor of assessee. - IT APPEAL NO. 1912 (AHD.) OF 2010 - - - Dated:- 26-8-2011 - D.K. TYAGI, A.K. GARODIA, JJ. Jyotish M. Shah for the Appellant. Mahesh Kumar for the Respondent. ORDER A.K. Garodia, Accountant Member. This is an assessee's appeal directed against the order of Commissioner of Income-tax (Appeals)-XVI, Ahmedabad dated 6-5-2010 for assessment year 2007-08. 2. Grounds raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 20-01-2006 and in the case of Hemtej Imprint v. Dy. CIT in ITA No.1520/Ahd/2010 dated 30-07-2010. Regarding judgment of Hon'ble Gujarat High Court rendered in the case of National Wire Manufacturing Co. v. CIT [2002] 253 ITR 496/125 Taxman 521, it was submitted that although this judgment of Hon'ble Gujarat High Court is for the period prior to the amendment of section 40(b), the ratio laid down by Hon'ble Gujarat High Court in this case, covers the present issue in favour of assessee. It was submitted that as per the earlier provisions of section 40(b), the assessee-firm was not eligible for deduction in respect of salary paid to a partner. It is submitted in that case decided by Hon'ble Gujarat High Court, these facts were noted by Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of lower authorities and he placed reliance on a subsequent judgment of Hon'ble apex court rendered in the case of CIT v. Kanji Shivji Co. [2000] 242 ITR 124/108 Taxman 531 and it was submitted that Hon'ble apex court has considered its earlier decision rendered in the case of Rashik Lal Co. (supra) and it was held that application of u/s.40(b) and the said Explanation was not really an issue in the case of Rashik Lal Co. (supra) and hence, the observation in that case, relating to said Explanation must, therefore, be treated as obiter dicta and it was held that conclusion in the remaining two cases i.e. Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825/90 Taxman 41 (SC) and Suwalal Anandilal Jain v. CIT [1997] 224 ITR 75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us is not this that any explanation is declaratory or not because Explanation-4 to Section 40(b) was very much there on statute book during the relevant period i.e. assessment year 2007-08. Regarding other two judgments of Hon'ble apex court rendered in the case of Brij Mohan Das Laxman Das (supra) and in the case of Kanji Shivji Co. (supra), the issue involved was regarding allowability of deduction claimed by assessee in respect of interest paid by firm to partners in individual capacity for the period prior to 1-4-1985. In the present case, the issue is not regarding payment of interest but dispute in present case is regarding payment of salary to the partner. In the case of Rashik Lal Co. (supra) also, the dispute was regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner has joined the firm as a nominee of a Hindu undivided family. The Hindu undivided family or its representative does not have any special status in the partnership Act. Although the partnership firm is not a legal entity, it has been treated as an independent unit of assessment under the Income-tax Act. The assessment of a firm, will have to be made strictly in accordance with the provisions of the Income-tax Act. The law has to be taken as sit is. Section 40(b) applies to certain payments made by a firm to its partners. Neither the firm nor its partners can evade the tax law on the pretext that although in law he is a partner in reality he is not so. He may have to hand over the money to somebody else. That may be his position qua a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore reproduce the same hereinbelow:- "Explanation 4 - For the purposes of this clause, "working partner" means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;" 9. From the above Explanation-4 to Section 40(b), it is seen that a working partner can be an individual who is actively engaged in conducting the affairs of business of the firm of which he is a partner. It is not the objection of the Assessing Officer or of Ld. DR of the Revenue that salary was not paid by the firm to an individual. It is also not an objection that the concerned individual is not actively engaged in conducting the affairs of the business of the assessee-firm. The objection is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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