TMI Blog2012 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of five partners. Two of the partners D.C. Darbar and R.C. Darbar represented their Hindu Undivided Family in the partnership firm (hereinafter for short, referred to as 'HUF') being the karta of their family. In the partnership deed, there is no provision for payment of commission to them. These two persons possess Certificate of Diploma in Pharmacy. To carry on the business of drugs at least one person has to be qualified for selling the drugs. The firm paid commission to the aforesaid two partners, in their individual capacities amounting to Rs. 2,57,470/- each for the services rendered by them by virtue of the specialized qualification they possessed. The assessing officer held that, the said amount cannot be allowed as deduction at the hands of the firm in view of Section 40(b) of the Income Tax Act, 1961 (hereinafter for short, referred to as the 'Act'). In coming to the said conclusion, he relied on the judgment of the Apex Court in the case of Rashik Lal Co. v. CIT [1998] 229 ITR 458/96 Taxman 16 and that a HUF cannot be a partner, in a partnership firm. The individual in a representative capacity, on behalf of the HUF, is the partner. Commission paid to him is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership deed in question does not provide for payment of any commission to the partners. Hence, commission paid to the partners is not allowable as per the provisions of Section 40(b) and therefore, they dismissed the appeal affirming the orders passed by the appellate authority. 4. In fact, in the other two cases, the partners representing the HUF as karta were duly qualified doctors who are rendering services to the partnership firm which was running nursing homes. Therefore, in these two cases, the said partners are chemists, duly qualified and in other two cases they are doctors who were duly qualified, without whose services partnership firm could not carry on their business. That is how the common question of law do arise for consideration in all these cases. 5. At the time of admitting these appeals, the substantial question of law which is framed is as under: Whether on the facts and in the circumstances of the case, the commission payable individually to Dr. L.H. Bidri in his individual capacity by the appellant firm are an inadmissible item of expenditure while computing the income of the firm? 6. The learned counsel for the appellant contended that, in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct between certain individuals. The only right of the Hindu undivided family is possibly to call upon its nominee partner to render accounts for the profits that he has made form the partnership business. But that is something between the nominee and the Hindu undivided family, with which the partnership is not concerned. The specific provision in Section 13 of the Partnership Act, 1932, that a partner is not entitled to receive any remuneration for taking part in the conduct of the business, has been interpreted to mean that every partner is bound to attend diligently to the business of the firm. For doing his duties, he cannot charge his copartners any sum or remuneration, whether in the shape of salary, commission or otherwise, on account of the trouble taken by him in conducting the partnership business. There, however; can be a special contract to the contrary in which case, the provisions of that contract will prevail. Section 40(b) of the Income-tax Act, 1961, will apply, even where there is such a special contract. Any commission paid by a firm to its partner will not be permitted as deduction from the business income of the firm. If a claim is made by a partner that he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have to hand over the money to somebody else. That may be his position qua a third party. But the firm has nothing to do with it. It has paid the commission to one of its partners. It cannot get any deduction in its assessment for that payment, because Section 40(b) of the Act expressly prohibits such deduction." 9. Partnership is an association of individuals. The said individuals may be a natural person or a legal person. A partnership firm is a compendious way of describing individuals constituting the firm. The Partnership Act, 1932 contains various provisions regarding the relationship among partners. All these provisions relating to the mutual rights and liabilities are only applicable to the individual partners who are members of the firm. A partner does not act in a representative capacity in the partnership. He functions in his personal capacity like any other partner. The provisions of the Partnership Act and the Income-tax Act relating to partners and partnership firms will apply in full force in respect of such a partner. The application for registration of a firm has to be made under Section 184 of the Income-tax Act. The very fact that individual shares of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary in section 30 to (38), the following amounts shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession ", - ( a )** ** ** ( b ) in the case of any firm assessable as such- ** ** ** ( v ) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:- ( a ) on the first Rs. 3,00,000 of the book-profits or in case of loss Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more. ( b ) on the balance of the book profit At the rate of 60 per cent 12. A partner is not entitled to receive remuneration for taking part in the conduct of the business under Section 13 of the Partnership Act. This rule is subject to the contract to the contrary. In other words, if there is a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee relied on the judgment of the Andhra Pradesh High Court and Punjab and Haryana High Court where taking clue from the exception (1) to Section 40(b) where a specific provision is made recognizing the distinction between a partner in an individual capacity and partner in a representative capacity and the benefit of deduction to the firm in respect of interest paid to a partner in his individual capacity is given. When payment of interest is in his individual capacity is deductible, the same analogy is to be applied in so far as the remuneration, salary is concerned, we are afraid that, such an analogy is not permissible in law. If the legislature thought it fit to expressly state that, interest paid to a partner in his individual capacity is deductible as an exception and the same interest paid to him in a representative capacity is not deductible, and the law do not extend the said benefit to other payments such as remuneration, bonus or salary, it is clear that, the legislature had no intention of extending such benefit. It is settled law, while interpreting the statutory provisions, not only the court has to keep in mind the express words used in the Section, it ough ..... X X X X Extracts X X X X X X X X Extracts X X X X
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