Law:

Section:

I. Section 40(b) of the Income-tax Act, 1961 - Business disallowance - Interest, salary, etc. paid by firm to partner - Assessment year 1976-77 - One 'G' was partner in assessee-firm representing his HUF - Whether in view of section 40(b), salary paid to 'G' by assessee for services rendered by 'G' was not allowable as deduction while computing income chargeable under head 'profits and gains of business or profession' - Held, yes II. Section 80HH of the Income-tax Act, 1961 - Deductions - Profits and gains from hotels or industrial undertakings etc., in backward areas - Assessment years 1977-78 and 1978-79 - Whether running a cold storage does not come within purview of industrial undertaking under section 80HH and, therefore, no deduction under said section would be available to assessee in respect of cold storage ran by it - Held, yes FACTS-I One 'G' was partner in the assessee firm as a representative of the HUF being its karta. The assessee paid salary to one 'G' for his services rendered by him in his individual capacity. Treating the salary as a payment to partner, the ITO disallowed the said amount while computing the income of the assessee under section 40(b ). On reference : HELD-I Undisputedly, 'G' was partner in the assessee-firm representing his HUF in the capacity of a karta. He had been paid salary every year. Section 40( b ) deals with the amount which is not deductible while computing the income chargeable under the head 'Profits and gains of business or profession'. Clause ( b) during the relevant assessment year disallowed the payment of salary to any partner. In view of section 40( b), the salary allowed to 'G' was not allowable as deduction while computing the income chargeable under the head 'Profits and gains of business or profession'. FACTS-II The assessee ran a cold storage and had claimed that it was an industrial undertaking in a backward area and since it had satisfied all the conditions laid down in section 80HH(2), it was entitled to the benefit of the aforesaid section. The ITO rejected its claim as according to him the assessee was not engaged in the manufacture of articles and hence the necessary conditions were not satisfied…

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