High Court Of Madras
CIT vs. P.S.T.S. Thiruvirathnam & Sons
Sections 40(b), 256
Asst. Year 1986-87
R. Jayasimha Babu & K. Raviraja Pandian, JJ.
Tax Case No. 439 of 1997
30th September, 2002
J. Naresh Kumar, for the Applicant : T.V. Ramanathan, for the Respondent
R. Jayasimha BAbu, J. :
The question referred is, “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in overlooking the decision of the jurisdictional High Court in the case of ASK Rathnaswamy Nadar Firm vs. CIT (1965) 58 ITR 312 (Mad) and of the Patna High Court in the case of Chandmal Rajgarhia vs. CIT (1986) 52 CTR (Pat) 129 : (1987) 164 ITR 486 (Pat) and holding that the salary paid to the partners should not be disallowed under s. 40(b)?”
The assessment year is 1986-87.
2. The assessee is a partnership firm. Its partners were paid salaries in their individual capacities while they represented their respective HUFs in the firm as partners. Their claim that the salary paid to them should not be disallowed under s. 40(b) of the Act was rejected by the AO whose order was upheld by the CIT(A). TheTribunal, however, held that the salary paid to the partners was an allowable deduction.
3. This Court in the case of R.M. Appavu Chettiar & Sons vs. CIT (2002) 174 CTR (Mad) 198 : (2002) 256 ITR 289 (Mad) has held that the HUF or its representative does not have any specific status in the Partnership Act and that the salary payments made to the partners representing HUFs is required to be disallowed under s. 40(b) of the IT Act. The law laid down in that judgment is applicable to the facts of this case as well.
4. Counsel for the assessee, however, submitted that the question should not be answered by us as according to him under the circular issued by the CBDT if the amount of tax involved is less than Rs. 30,000, the Department is not to pursue the matters in the higher forum. We have perused the circular of 4th Nov., 1987. It is not an unqualified embargo on the revenue proceeding with the matter where the amount of tax in issue is Rs. 30,000 or less. Several exceptions are set out in that circular. If the assessee wanted the benefit of that circular it should have put the Revenue on notice when the Revenue applied for having the question referred so that the Revenue could gather the relevant material, if any, to show that the matter was within the excepted category. After the question has been referred to us, we cannot now permit the assessee to raise this objection.
5. For the reasons stated in the judgment of this Court in the case of Appavu Chettiar cited (supra), we hold that the salary paid to the partners who represented their HUFs was required to be disallowed under s. 40(b)
[Citation : 261 ITR 406]