S. J. C. Nos. 30 and 31 of 1987. Case: Rasiklal and Co. Vs Commissioner of Income Tax. Orissa High Court

Case Number:S. J. C. Nos. 30 and 31 of 1987
Party Name:Rasiklal and Co. Vs Commissioner of Income Tax
Judges:Dr. Arijit Pasayat, J.
Issue:Income Tax Act, 1961 - Sections 2, 40, 64, 56
Citation:1992 (99) CTR 85 (Ori), 1992 (193) ITR 246 (Orissa), 1992 (62) TAXMAN 322 (Orissa)
Judgement Date:September 18, 1991
Court:Orissa High Court


A. Pasayat, J.

  1. In both the cases at the instance of the assessee, the following question has been referred under section 256(1) of the Income Tax Act, 1961 (in short "the Act"), for adjudication by this court:

    Whether, on the facts and in the circumstances of the case, the commission paid by the assessee-firm to Sri Rasiklal P. Rathor (individual) was rightly disallowed under section 40(b) of the Income Tax Act, 1961?

  2. The cases are disposed of by this common judgement.

  3. According to the Revenue, in terms of section 40 (b) of the Act, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm in case the assessee is a firm is not a permissible deduction while computing the income chargeable under the head "Profits and gains" of business or profession.

  4. The undisputed factual position is that one Sri Rasiklal P. Rathor is a partner in the firm, M/s Rasiklal and Co. (hereinafter referred to as "firm") representing his Hindu Undivided family. For the assessment years 1979-80 and 1981-82, the sums of Rs. 2,038 and Rs. 30,658 were paid to the said Rasiklal P. Rathor in his individual capacity as commission. The Assessing Officer added the amounts to the taxable income of the firm, purportedly under section 40(b) of the Act. The firm is described as the assessee in this judgement.

  5. The assessee questioned the legality of the addition. The assessees stand was that payment was made to Sri Rasiklal P. Rathor in his individual capacity, while his Hindu undivided family was the partner and, therefore, section 40(b) had no application. A distinction was made that Rasiklal P. Rathor was a different person while representing his Hindu undivided family firm and while receiving commission as an individual.

  6. There is no unanimity in the views of several High Court on the question. In the following cases, it has been held that the prohibition contained in the clause is absolute and makes no distinction between payments by way of interest, commission, salary, etc., made to a partner as a partner and such payments made to him in a different character, e.g., in his personal capacity when he is a partner in his capacity as a karta of a joint family or vice versa. (see A. S. K. Rathnaswamy Nadar Firm v. CIT [1965] 58 ITR 312 (Mad), Giridharilal Ghasiram v. CIT [1968] 69 ITR 890 (Cal) Pannalal Girdharilal v. CIT [1971] 81 ITR 624 (Delhi), N. M. Anniah and Co. v. CIT [1975] 101 ITR 348 (KAR)...

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