TMI Blog1975 (4) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of salary. On a perusal of the said order of assessment, the Commissioner of Income-tax, Bangalore, felt that the non-inclusion of Rs. 12,000 referred to above in the taxable income of the assessee was prejudicial to the interest of the revenue. He, therefore, issued notice to the assessee to show cause as to why the order of assessment should not be revised. After considering the objections of the assessee the commissioner set aside the order of assessment and directed the Income-tax Officer to pass a fresh order by including Rs. 12,000 in the taxable income of the assessee. Aggrieved by the order of the Commissioner, the assessee filed an appeal before the Tribunal. The Tribunal found that : (1) that the partnership deed dated April 1, 1968, under which the assessee-firm was constituted stated that N.M. Anniah had entered into partnership in his capacity as the karta of his Hindu undivided family ; (2) that the partnership deed further stated that N. M. Anniah was entitled to a salary of Rs. 1,000 per month in his individual capacity " for his personal skill, drive and ability " ; and (3) that the salary of Rs. 12,000 paid to N. M. Anniah was not deductible in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be assessed as the income of the Hindu undivided family. On the basis of these two decisions of the Supreme Court it was argued that while construing section 40(b) of the Act also it had to be held that when a person was a partner in his character as karta of the family, the remuneration paid to him should be held to be non-deductible from the total income for the purposes of levying income-tax only when the remuneration paid directly related to the funds of the family contributed as capital and not when there is no such relationship between the remuneration paid and the capital contributed. It is well-settled that a Hindu undivided family, as such, cannot enter into a partnership with another person or persons, that a karta of a Hindu undivided family may, and frequently does, enter into partnership on behalf of the family with outsiders and that when he does so, the other members of the family do not, vis-a-vis the outsiders, become the partners of the firm and that so far as outsiders are concerned, it is the karta who alone is, and is in law, recognised as the partner. We do not think that the contention urged on behalf of the assessee on the basis of the two decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as such. The prohibition extended to salary paid to a partner in any capacity. In Girdharilal Ghasiram v. Commissioner of Income-tax , it was contended that where a person was a partner in his capacity as the karta of a Hindu undivided family and was remunerated in the capacity of a servant of the firm, section 10(4)(b) was not applicable. The High Court of Calcutta rejected the above contention holding that in whichever capacity the partner might have received the remuneration, no deduction could be claimed in that behalf. The High Court of Allahabad and the High Court of Delhi have expressed the same view in Commissioner of Income-tax v. Ram Laxman Sugar Mills and Pannalal Girdharilal v. Commissioner of Income-tax respectively. In view of the decisions referred to above, with which we concur, the first contention urged on behalf of the assessee has to fail. The next contention urged by Sri K. Srinivasan is based on section 40A of the Act which was inserted by the Finance Act, 1968. The relevant part of that section reads : " 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, can it be said that section 40(b) which continues on the statute book has been made, nugatory by section 40A ? In order to decide the above question we have to determine first the matters to which section 40A applies. A fair reading of section 40A shows that it is enacted with the object of conferring power on the assessing authorities to determine whether the expenditure referred to therein in respect of which deduction is claimable, is excessive or unreasonable and to disallow only so much of such expenditure as is found excessive or unreasonable. Disallowance arises only when an allowance is claimable. If no allowance can be claimed under the other provisions of law, the question of disallowance does not at all arise. Because under section 40(b) amounts paid to a partner by the firm by way of interest, salary, bonus, commission or remuneration cannot be deducted in computing the income chargeable under the head " profits and gains of business or profession " there is no occasion to apply section 40A to such payments. Section 40A deals with three classes of persons so far as a firm is concerned, viz., partners, members of the family of partners and relatives of partners.' Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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