Working partner remuneration remains deductible where the partner represents a Hindu undivided family, despite nominee status.

Remuneration paid by a firm to an individual working partner is not disallowable under section 40(b) merely because the partner is a nominee of a Hindu undivided family. The partnership relationship exists between the firm and the individual partner, and the Hindu undivided family does not enter that contractual arrangement. A partner may account to his family for amounts received, but for assessment of the firm the payment remains one to the partner as such. Explanation 4 to section 40(b) reinforces this position by treating a working partner as an individual actively engaged in the firm's business, even if he represents a Hindu undivided family.

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Issues: Whether remuneration paid by a firm to its working partners can be disallowed under section 40(b) of the Income-tax Act, 1961, merely because the partners are nominees of their Hindu undivided families and whether Explanation 4 to section 40(b) alters that position.

Analysis: The remuneration was paid to individuals who were actively engaged in conducting the affairs of the firm. The legal relationship in a partnership is created between the firm and the individual partner, and a Hindu undivided family cannot intrude into that contractual relationship. A partner may be accountable to his family for amounts received, but in the assessment of the firm the payment remains one made to the partner as such. Explanation 4 defines a working partner as an individual actively engaged in the business of the firm, and that description is satisfied by the individual partner notwithstanding that he may represent a Hindu undivided family.

Conclusion: The remuneration paid to the working partners was not liable to disallowance on the sole ground that they were nominees of Hindu undivided families, and the question was answered in favour of the assessee.

Final Conclusion: The Revenue's challenge failed and the disallowance made by the Assessing Officer was not sustained.

Ratio Decidendi: For purposes of section 40(b), remuneration paid by a firm to an individual working partner cannot be treated as payment to a Hindu undivided family merely because the partner represents that family.

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