Partner remuneration is non-deductible where paid by a firm, even if the partner acts as karta of an HUF.

A firm's remuneration payment to a partner is not deductible as business expenditure under section 10(4)(b) of the Income-tax Act, 1922, even where that partner acts as karta of a Hindu undivided family. The legal relationship remains one between the firm and the individual partner for tax purposes; the partner's representative capacity does not change the character of the payment. Accordingly, salary or remuneration paid by the firm to such a partner falls within the statutory prohibition and cannot be claimed under section 10(2)(xv), although any partnership profits may still be assessed in the hands of the family represented by the partner.

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Issues: Whether remuneration paid by a firm to a partner who represented a Hindu undivided family was disallowable under the Income-tax Act, 1922.

Analysis: A Hindu undivided family cannot, as such, be a partner in a firm; in dealings with outsiders, the karta alone is recognised as the partner even if he enters the firm on behalf of the family. The fact that the partner represents a family does not alter the legal relationship between the firm and the partner for purposes of section 10(4)(b). Since the payment was made by the firm to a partner for services rendered in that capacity, it could not be treated as deductible business expenditure under section 10(2)(xv), even though the partnership profits might ultimately be assessable in the hands of the family represented by the partner.

Conclusion: The remuneration was rightly disallowed under section 10(4)(b), and the question was answered in the affirmative in favour of the Revenue.

Ratio Decidendi: A payment by a firm to its partner by way of salary or remuneration is not deductible as business expenditure under section 10(4)(b), and this prohibition is not avoided because the partner acts as karta of a Hindu undivided family.

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