Partner payments under statutory appointment were allowable deductions, not disallowed partnership remuneration under income-tax law.

Section 10(4)(b) of the Indian Income-tax Act, 1922 disallows only payments made by a firm to a partner in the character of a partner. Remuneration and allowances paid to partners for acting as authorised controllers and members of a board of management under a statutory appointment were found to arise from Government directions, not from the partnership agreement. As the sums were paid in a different capacity and constituted business expenditure rather than a distribution of partnership profits, they were not barred by section 10(4)(b) and were allowable deductions.

---

---

Issues: Whether remuneration and allowances paid by a firm to its partners, while they were functioning as authorised controllers and members of a board of management appointed under the Essential Supplies (Temporary Powers) Act, 1946, were inadmissible under section 10(4)(b) of the Indian Income-tax Act, 1922.

Analysis: Section 10(4)(b) creates a bar against deduction of any payment by way of interest, salary, commission or remuneration made by a firm to any partner. The provision is aimed at payments made in the character of a partner and, as applied here, it does not extend to sums paid under a statutory appointment made by the Central Government, independent of the partnership agreement. The payments in question were not made pursuant to any contract between the partners, but under directions of the Government for management of the undertaking. They were therefore expenditure incurred for the purposes of the business and did not represent a distribution of partnership profits in the statutory sense.

Conclusion: The payments were not hit by section 10(4)(b) and were allowable deductions in computing the firm's taxable income.

Ratio Decidendi: A payment made by a firm to a partner is disallowable under section 10(4)(b) only when it is made to him as a partner in the character of a partner, and not when he receives it under an independent statutory or governmental appointment in a different capacity.

---