Payments to partners in the form of salary, interest, commission or remuneration are non deductible under Section 10(4)(b).

Section 10(4)(b) was interpreted according to its plain words as amended in 1939: payments described as interest, salary, commission or remuneration made by a firm to any partner are excluded from allowable deductions regardless of whether the partner receives them through a separate proprietary concern. The court rejected pre amendment factual inquiries distinguishing payments by partners in another capacity and declined reliance on foreign decisions under different statutory language. Applying canonical construction for taxing statutes, the prohibition on deduction was enforced and the firm's claims for commission payments to entities owned by partners were disallowed.

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Issues: Whether the sums paid by the firm to Luckman and Company and Bhatt and Company constituted payments "by way of interest, salary, commission or remuneration made by a firm to any partner of the firm" within the meaning of Section 10(4)(b) of the Income-tax Act, and therefore were not allowable deductions in computing the profits of the firm.

Analysis: The Court examined the language of Section 10(4)(b) as inserted by the Amendment Act of 1939 and observed that the provision contains no distinction between payments to a partner in his capacity as partner and payments to him in some other character. Prior case-law before the 1939 amendment showed factual inquiry into whether payments to partners were bona fide payments in a distinct capacity (employee, lender, etc.), but the statutory amendment was intended to remove that uncertainty for partnerships governed by the Partnership Act. Canonical rules of construction for taxing statutes require giving effect to the clear words of the provision without reading in exclusions. The Court rejected reliance on English decisions under different statutory language and distinguished earlier Indian decisions as addressing the pre-amendment uncertainty and factual inquiries. Applying the plain wording of Section 10(4)(b), the Court concluded that payments described as interest, salary, commission or remuneration made by a firm to any partner fall within the prohibition irrespective of whether paid to a separate proprietary concern of which the partner is the proprietor.

Conclusion: The commissions of Rs. 2,642 and Rs. 3,037 paid to Luckman and Company and Bhatt and Company respectively are payments "by way of commission" made by the firm to partners and therefore fall within Section 10(4)(b) of the Income-tax Act; the claim for deduction is disallowed.

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