- (1.) This order shall dispose of afore mentioned writ petition; one reference under Section 256(1) of the Income Tax Act, 1961 and; nine Income Tax Appeals arising out of the factum of addition in the income either on account of payment of salary or interest on their capital to partners, when there is no prior agreement to pay either the determined amount of salary or rate of interest.
(2.) The question of law, as raised in ITR No. 38 of 1999, reads as under: Whether on the facts and circumstances of the case, the ITAT was right in law in allowing deduction of salary and interest paid to the partners on the ground that such an adjustment is not permitted under Section 143(1)(a), when the same is clearly inadmissible as per the provisions of Section 40(b) of the Income-tax Act, 1961.
(3.) However, for facility of reference the facts are being taken from CWP No. 3765 of 1997, in which challenge is to the circular dated 25.03.1996 (Annexure P-5) issued by the Central Board of Direct Taxes (for short 'the Board') consequent to amendments in the Income Tax Act, 1961 (for short 'the Act') w.e.f. 01.04.1993 by Finance Act, 1992 whereas, in other cases questions of law have been framed on the same lines.;