Partner salary deduction allowed where services were genuine business expenditure, not a colourable tax-avoidance arrangement.

Salary paid to a managing partner and another partner was allowable as a deduction where the payments reflected services actually rendered and were not a device to evade tax. The managing partner had performed substantial work beyond an ordinary partner's role, including staff management, finance, borrowing, litigation matters, and account maintenance, while the other partner supervised the estate and handled field work in the superintendent's absence. On these facts, the sums were treated as real business expenditure under section 5(e) of the Madras Agricultural Income-tax Act, 1955. The existence of a loss in the accounting year did not by itself justify disallowance when the services were established on record.

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Issues: Whether salary paid to a managing partner and to another partner for services actually rendered was allowable as a deduction under section 5(e) of the Madras Agricultural Income-tax Act, 1955, or whether the payment was a device to escape tax.

Analysis: The managing partner was found to have performed substantial services for the firm beyond the normal role of a partner, including staff management, finance, borrowing, litigation work, and maintenance of accounts. The other partner similarly supervised the estate and attended to field work in the absence of a superintendent. On these facts, the payments were treated as real expenditure laid out for the purposes of the business and not as a colourable arrangement to evade tax. The existence of a loss in the accounting year did not by itself justify disallowance where the services were established on the record.

Conclusion: The deduction was allowable and the revenue's challenge failed.

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