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TMI Blog1973 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... India was compelled to take action under section 3(4) of the Essential Supplies (Temporary Powers) Act, 1946 (Act No. XXIV of 1946), and appointed Sarvasri Suraj Bhan and Maidhan Gupta as authorised controllers to work jointly for the running of the sugar mills. Under another order the remuneration payable to the authorised controllers was determined by the Government of India. Subsequently, the Government of India constituted a board of management for the running of the said sugar mills, consisting of four persons who were some of the partners of the assessee-firm. From the facts as reported in Commissioner of Income-tax v. Ram Laxman Sugar Mills, it appears that the appointment of the board of management as in supersession of the earlier order. During the assessment year 1957-58 a total sum of Rs. 28,422 was paid to the members of the board towards remuneration of the managing directors, Sri Sheo Prasad and Sri Suraj Bhan, conveyance allowance, driver's salary and for attending meetings of the board of management at Delhi. The assessee-firm claimed a deduction of this amount, but it was disallowed by the revenue authorities under section 10(4)(b) of the Indian Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia under the above Act. Remuneration was payable to the members of the board of management under the directions of the Government of India. There was no agreement, direct or implied, between the partners of the firm for payment of remuneration to the board of management appointed under the above Act. The question for consideration, therefore, is whether the payment made by the firm under the directions of the Government of India, i.e., not voluntarily to the board of management, not as partners but as members of the board, even though they were partners of the firm, is covered by section 10(4)(b) of the Indian Income-tax Act, 1922, and is not to be deducted from the profits of the firm. Section 10(4)(b) runs as below : ".... nothing in clause .... (xv) of sub-section (2) shall be deemed to authorise . . . . (b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm." The sub-section was added to the main enactment under Amending Act No. VII of 1939. Before the incorporation of this sub-section there was some controversy and the law laid down generally was that the nature of the payment must be lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners, viz., Sri Mai Dhan, has already been assessed to tax in respect of the remuneration received by him, from the firm as a member of the board of management shall not make any difference. The law must be interpreted as it is and a different meaning cannot be given simply because it was applied differently to an assessee. To avoid double taxation it shall be open to that person to seek remedy according to law. To sum up, the payment of Rs. 28,422 to the members of the board of management, who were partners of the assessee-firm, towards remuneration, etc., was covered by section 10(4)(b) of the Indian Income-tax Act, 1922, and was to be disallowed while determining the total taxable income of the assessee-firm. The question referred by the Income-tax Appellate Tribunal must, therefore, be replied in the negative. T. S. MISRA J.-The Income-tax Appellate Tribunal, Delhi Bench, has referred the under-mentioned question to this court for opinion. "Whether, on the facts and in the circumstances of the case, the sums aggregating to Rs. 28,422 claimed as payments as per details, vide para. 3 supra, made to partners for performing certain functions under the Essential Supplies (Tem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be deemed to authorise the allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains ; and nothing in clause (xv) of sub-section (2) shall be deemed to authorise ...... (b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm ........ Proceeding on the premise that one of the partners of the said firm, viz., Sri Mai Dhan, had already been assessed to tax in respect of the remuneration received from the firm as a member of the board of management for the assessment years 1954-55 and 1955-56, the Division Bench observed that the allowance of any salary, commission or remuneration paid by the firm to either Sri Mai Dhan Gupta or other members of the board of management in contravention of the provisions of section 10(4)(b) was not justified, and that the bar imposed by section 10(4)(b) was clear and unambiguous and the fact that the payment of salary and remuneration to the partners, who happened to be also the members of the board of man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be entitled to deduction in the computation of the firm's income. The income of a partner of a firm is computed in accordance with the procedure provided in section 16(1)(b) of the Act. The total income of a partner of a firm is his share of the profit or loss of the firm and such share shall be taken to be the salary received by him as well as his share of the income in the balance of the profit after deduction of the salary paid to him. Reading the provisions of section 16(1)(b) along with those of section 10(4)(b) it is quite clear that salary paid by a firm to a partner is in principle but a part of his share of the profits of the firm. The total income of the firm as computed with reference to section 10(4)(b) would, therefore, include the salary paid to the partner by the firm. This is quite consistent with the principle that a partner cannot also be an employee of the partnership inasmuch as a man cannot be, his own employer. An agreement stipulating that a partner shall receive a salary would merely regulate the mode in which the accounts are taken for the purposes of ascertaining the income of the firm and the division of profits between the partners. The salary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the board of management of the undertaking by the Central Government under the provisions of the Essential Supplies (Temporary Powers) Act, 1946. But, while acting as a receiver or authorised controller or as a member of the board of management his position, responsibility and liabilities would be different and distinct. As a receiver he would be answerable to the court appointing him : vide rules 3 and 4 of Order 41 of the Code of Civil Procedure. Similarly, as an authorised controller he would be answerable to the Central Government under sub-section (iv)(a) of section 3 of the Essential Supplies (Temporary Powers) Act. A court can appoint any person including a partner of the firm as a receiver under the provisions of rule 1 of Order 40, Civil Procedure Code. In that event he would be liable to submit his accounts at such periods and in such form as the court directs and to explain his conduct to the court and not to his other partners. He would also be entitled to receive such remuneration as might be determined by the court under rule 2 of Order 40, Civil Procedure Code, for the services rendered by him as receiver. He may also be removed from the office of the receiver by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the partners of the firm. It was an appointment of an independent nature governed by the provisions of the Essential Supplies (Temporary Powers) Act and the conditions laid down by the Central Government in that behalf. I am, therefore, of the view that the payments in question were not covered by the provisions of section 10(4(b) of the Income-tax Act, 1922, and the same could be deducted while computing the total taxable income of the assessee-firm. I would, therefore, answer the question in the affirmative and in favour of the assessee. R. L. GULATI J.-I have had the advantage of reading the judgments prepared by Hon'ble Mathur, Actg. C.J., and Hon'ble T. S. Misra J. After having considered the matter very carefully, I am inclined to agree with Hon'ble, T. S. Misra J., although for different reasons. There is no doubt that section 10(4)(b) of the Indian Income-tax Act, 1922, creates an absolute bar and no payment made by a firm to a partner by way of interest, salary, commission or remuneration can be allowed as a deduction in computing the net profit of the business carried on by a partnership. The capacity in which a partner receives such payment is not very material. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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