Law:

Section:

Section 40(b) , read with section 40A, of the Income-tax Act, 1961 - Business disallowance - Interest, salary, etc. paid by firm to partner - Assessment year 1969-70 - Whether section 40(b) which says that in case of firm any payment of salary made by firm to any partner is not deductible is absolute in its terms and it is applicable to all cases irrespective of character in which person has become partner of firm - Held, yes - Whether overriding effect given to section 40A is only in respect of matters not covered by section 40(b) - Held, yes FACTS 'N' was one of partners in the assessee firm in his capacity as the Karta of his Hindu undivided family and under the partnership deed, he was entitled to a salary of Rs. 1,000 per month in his individual capacity for his personal skill, drive and ability. While making assessment, the Assessing Officer excluded the sum of Rs. 12,000 which had been paid by the assessee firm to 'N' by way of salary. The Commissioner felt that the non-inclusion of Rs. 12,000 in the taxable income of the assessee was prejudicial to the interests of the revenue and, therefore, he set aside the order of assessment and directed the ITO to pass a fresh order by including Rs. 12,000 in the taxable income of the assessee. The Tribunal dismissed the assessee's appeal. On reference, the assessee contended that while construing section 40( b) 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 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 was also contended that the total ban found in section 40(b) was virtually lifted by Parliament by enacting section 40A and that the sum paid to a partner by the firm by way of salary became deductible provided it was neither excessive nor unreasonable. HELD It is well-settled that a HUF, as such, cannot enter into a partnership with another person or persons, that a karta of a HUF may, and…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492