INCOME TAX ACT, 1961

--Business disallowance under section 40(b)--Remuneration to partners Salary paid to partner representing HUF--The assessee firm paid remuneration to partner who was representing his HUF. AO disallowed the remuneration so paid. The objection was that such individual was not a partner of the assessee-firm in his individual capacity but he was a partner in the capacity of representative of HUF of which he was a karta and for this reason. Held: A partner of a firm is individual only even if he is partner as a representative of HUF. If that be so, the requirements of Explanation-4 to Section 40(b) are complied with in respect of payment of remuneration to such a partner also who is a partner in his representative capacity being karta of the HUF partner. The requirement of Explanation-4 to Section 40(b) stand complied with in the present case and hence, there is no valid reason for making this disallowance because it is not the case of the AO that the concerned partner, V was not actively engaged in conducting the affairs of the business of the assessee-firm.

Income Tax Act, 1961 Section 40(b)

IN THE ITAT, AHMEDABAD 'D' BENCH

D.K. TYAGI, JM & A.K. GARODIA, A.M.

P. Gautam & Co. v. Jt. CIT

IT Appeal No. 1912 (Ahd.) of 2010

A.Y. 2007-08

26 August 2011

Income Tax Act, 1961, S. 40(b)

Decision: In assessee's favour.