B.P.Jeevan Reddy, C.J. - (1.) Under Section 256(2) of the Income-tax Act, 1961, the following question is referred : "Whether, on the facts and in the circumstances of the case, the remuneration paid to the partners could, in law, validly be directed to be excluded from the allocation of the firm's income in the hands of the partners on the ground that the remuneration was paid to the karta in his personal capacity ?."
(2.) The assessee is a firm. The assessment year is 1973-74. The firm consisted of four partners, Jiwan Lal, Panju Lal, Govardhan Lal and another. The shares of the partners were equal. To the above three named partners, certain amounts were paid by the firm by way of salary. In the assessment, the firm claimed deduction of the amount paid by way of salary to the said partners. This was disallowed by the Income-tax Officer. In appeal, no objection was taken to this but what was argued was that "since the remuneration paid to these partners as per the agreement deed was for personal service, it should not be shown as part of their share income because it would be theirs in the status of individual whereas the share income from the firm is in the status of a Hindu undivided family". The Appellate Assistant Commissioner agreed with the said contention and made a direction accordingly. Thereupon, the matter was carried to the Tribunal in appeal which was dismissed.
(3.) It must be remembered that the assessee herein is a firm. The firm paid certain amounts to its partners by way of salary. There could have been a proper controversy whether the said amount paid by way of salary should be disallowed under Clause (b) of Section 40, but that was not the contention of the assessee before the Appellate Assistant Commissioner. No objection was taken to the disallowance of the amount in the hands of the firm. What was, however, argued was that the amount of salary should not be shown as part of the share income. We are unable to see how this controversy is relevant in the assessment of the firm. It may be relevant in the case of assessment of the concerned Hindu undivided family or in the individual assessment of the karta of the Hindu undivided family, if any. But it is certainly not relevant so far as the firm is concerned. The Tribunal also says that the disallowance of the said amount "paid by way of salary to the partners" is not in question before it. In the circumstances, it must be held that the question referred does not really arise in the assessment of the firm and does not need any answer at our hands.;