1971 (4) TMI 30 - HC - Income Tax

High Court allows deduction for salary payment to partner's employee under Income-tax Act

The High Court of ALLAHABAD ruled in favor of the assessee, a Hindu undivided family represented by Shri K.L. Raizada, allowing the deduction of Rs. ... Remuneration paid by a partner by engaging another person ofr firm - Whether, Tribunal was correct in holding that the salary payment was an expenditure incurred wholly and exclusively for the purposes of earning share of profits and remuneration from firm and as such was an allowable deduction under the provisions of the Income-tax Act – Held, yes - held that remuneration paid to such worker by the partner is deductible from his remuneration received from the firm Issues:1. Whether the salary payment of Rs. 12,000 to Shri P.N. Suri was an allowable deduction under the Income-tax Act for the assesseeRs.2. Whether the salary paid to Shri P.N. Suri could be treated as salary paid to Shri K.L. Raizada as a partner of the firmRs.3. Whether the deduction of Rs. 12,000 in the assessment of the assessee should be allowed under section 10(2)(xv) of the Income-tax ActRs.Analysis:The High Court of ALLAHABAD was presented with a case where the Income-tax Appellate Tribunal referred a question regarding the allowance of a salary payment to Shri P.N. Suri as a deduction under the Income-tax Act. The assessee, a Hindu undivided family represented by Shri K.L. Raizada, contended that the sum of Rs. 12,000 paid to Shri P.N. Suri should not be included in its income or, in the alternative, should be allowed as an expenditure incurred for earning profits. The Tribunal concluded that the salary paid to Shri Suri was essentially remuneration for Shri Raizada, who then employed Shri Suri and paid the remuneration to him. Consequently, the Tribunal held that the salary could be considered as paid to Shri Raizada, a partner of the firm. It further ruled that the assessee was entitled to claim a deduction for the amount of Rs. 12,000 paid to Shri Suri, directing its deletion from the total income of the assessee.Regarding the second issue, the Tribunal found that as per the partnership deed of M/s. Standard & Co., the assessee had the option to nominate Shri Suri to work on his behalf. The Tribunal established that the assessee had to spend the amount as remuneration to Shri Suri in order to earn the salary stipulated in the partnership deed. Shri Raizada did not retain any part of the salary for himself but transferred the entire amount to Shri Suri. Consequently, the Tribunal concluded that Shri Raizada had to incur an expenditure of Rs. 1,000 per month to earn the specified salary, justifying the allowance of a deduction of Rs. 12,000 in the assessment of the assessee under section 10(2)(xv) of the Act.In the final judgment, the High Court answered the question in favor of the assessee, affirming that the salary payment to Shri Suri was an allowable deduction under the Income-tax Act. The Court awarded costs to the assessee and assessed the counsel's fee at Rs. 200.