TMI Blog1982 (1) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... aid salary, interest on deposits and bonus. It is common ground that Suresh Kumar Sanghi was a partner in the firm in his capacity as the karta of his HUF and that the income of the firm which fell to his share was assessed in the hands of the respective family and not included in his assessment as an individual. Equally it is common ground that the salary and the bonus were paid to Suresh Kumar Sanghi in respect of services rendered by him and were assessable as his, individual income. So also the deposits made by him with the firm, on which he derived interest, were all deposits made by him out of his own individual funds and the interest in respect of those deposits also has been assessed only in his hands as an individual. Thus, the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 457 ? " ITR 191/75 (assessment year 1968-69) " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the following amounts paid to Shri Suresh Kumar Sanghi were not allowable as revenue expenditure of the firm, Sanghi Motors: Rs. 1. Salary Bonus 26,250 2. Interest on deposits 2,030 ? " ITR 20/75 (assessment year 1969-70) " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the following amounts paid to Shri Suresh Kumar Sanghi were not allowable as revenue expenditure of the firm, Sanghi Motors : Rs. 1. Salary 21,000 2. Interest on deposits 4,181 3. Bonus 5,250 ? " We may mention that though the question refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who becomes a partner of the firm vis-a-vis the other partners and outsiders. So far as the firm and its other partners are concerned it is the karta or the person who has entered into the partnership who alone is recognised as a partner and neither the firm nor, the other partners are concerned with any arrangements or equities that may be existing between such partner and the other members of his joint family. This being the position, it was pointed out that s. 10(4)(b) places an absolute prohibition against the allowance of expenditure in the nature of interest, salary or commission paid by a firm to any partner. It did not make the slightest difference whether the person joining the firm as partner entered into the partnership in his i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of language in the two provisions, the disallowance under s. 10(4)(b) should be restricted to cases where the payments are taxable in the hands of the individual partner and the share income from the firm is also assessable in his hands. We are unable to accept this contention which runs counter to a large number of judicial decisions on the interpretation of s. 40(b) and its predecessor provision. There may perhaps be something to be said in a case where, though the partner, represents the family, a payment is made by the firm, say by way of interest to the joint family in respect of advances made by it to the firm which the partner was not obliged to provide to the firm on the terms of the partnership deed. In such a case, perhaps, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple that a firm is not a legal person or separate entity but only a compendious name for the partners who have combined together their capital, skill, labour etc., to carry on the business together on the basis of mutual agency. In this view of the matter any such payment by a firm to its partner would really be a payment towards his share of profits and is not an outgoing in the computation of the firm's income. Support for this line of reasoning is derived from the decision of the Supreme Court in the case of CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292. In the application of this principle there is no logical reason for distinguishing between one payment made by the firm to a partner from another whatever may be the capacity in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e karta of a joint family it cannot be included in his hands. So also if the partner had entered into a sub-partnership it is only his smaller share and not the larger share that can be assessed in his hands despite the provisions of s. 67(1)(b). We are, therefore, unable to see much significance in the circumstance on which Shri Ratna is placing very strong reliance, viz., that the share income has not been assessed in the hands of the partner. We are unable to accept the contention that s. 40(b) should not be applied because the payments in question and the share of income from the firm fell for assessment in different hands, the former in the hands of S. K. Sanghi and the latter in the case of his joint family. As we see it, the scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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