M.M.KUMAR, J. - (1.) THE short question which permeates this reference is whether s. 40(b) of the IT Act, 1961 (for brevity, 'the Act') is applicable to the amount of salary and bonus paid by the assessee firm to its partners for their individual service as against their HUF character. It is at the instance of the Revenue that the Income -tax Appellate Tribunal Chandigarh Bench, Chandigarh (for brevity, 'the Tribunal') has referred the following question of law, which is stated to have question of law referred reads as under : "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the amount of salary and bonus paid by the firm to partners for services rendered by them on the ground of having technical qualification and expertise, though they represented their HUF and s. 40(b) of the IT Act was not attracted -
(2.) BRIEF facts of the case which are necessary for disposal of this case are that the AO made an addition of Rs. 62,015 under s. 40(b) of the Act on account of salary and bonus paid by the assessee firm to its four working partners. Those partners were partners in their representative capacity as Karta of the HUF. Since these partners represented their respective HUFs, they were treated to be partners for the purpose of disallowance of benefits under s. 40(b) of the Act by the AO. However, on appeal the addition of Rs. 62,015 was deleted on the ground that the salary and bonus were paid to these persons as individual and in these circumstances s. 40(b) of the Act has no application. The amount received by them was not assessed in the hands of the HUF. The assessee had pleaded that these persons rendered personal services to the firm because they had technical qualification and expertise. It was in lieu of rendering of personal services by them that the salary and bonus were claimed to have been paid.
(3.) THE Revenue felt aggrieved by the order passed by the CIT(A) and preferred an appeal before the Tribunal. The The view of the Tribunal is discernible from para 3 of its order, which in turn has placed reliance on a judgment of Andhra Pradesh High Court in the case of N.T.R. Estate vs. CIT (1985) 49 CTR (AP) 85 : (1986) 157 ITR 285 (AP), wherein it has been held that the salary and interest paid by the firm to some of the partners is to individual even if they had become partner in their capacity as Karta in HUF. Therefore, the same could not be disallowed by applying the provisions of s. 40(b) of the Act. The Tribunal has approved the reasoning adopted by the CIT(A) while applying the ratio of the judgment in the case of N.T.R. Estate (supra). The order of the CIT(A) is as under : "......I have given a careful consideration to the submissions made by the learned counsel of the appellant and have also gone through the various assessment orders of the partners for the asst. yr. 1983 -84. It is a fact that salary and bonus paid to the partners S/Shri Madan Lal Jain, Rakesh Kumar Jain, Kimti Lal Jain and S.K. Jain, have been assessed in their the partners are rendering personal services to the firm and they have necessary technical qualifications and expertise in the respective fields as explained by the learned counsel for the appellant. It is also a fact that Shri Janak Raj Jain who has no technical knowledge of the working of the business of the firm has not been paid any salary. In view of this position, there is no doubt that the facts of the present case are on all fours with the Andhra Pradesh High Court decision in the case of N.T.R. Estate vs. CIT (1985) 49 CTR (AP) 85 : (1986) 157 ITR 285 (AP), and the ratio of that judgment shall therefore squarely apply therein. Considering the facts and circumstances of the case, therefore, the addition of Rs. 62,015 made by the ITO, under s. 40(b) of the IT Act deserves to be deleted." ;