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Tax Case No. 97 of 1965 (Reference No. 33 of 1965), decided on 25th November 1968.

Income‑tax‑Deduction ‑ Assessee entrusted with work in connection with production of pictures by firm of which he was partner‑Assessee engaging A to look after his interest, manage and assist him in work‑Salary and allowances paid to A-- Whether deductible from share income of assessee‑Indian Income tax Act, 1922, S. 10(2)(xv).

The assessee, who was a partner in a firm entrusted with looking after the work of the firm in connection with the produc tion of pictures and supervision thereof, engaged A as his full‑time manager to look after his interests, manage and assist him in the work he was expected to execute under the terms of the partner ship. The assessee's claim to deduct from his share income, the salary and travelling allowance paid to A was negatived by the Income‑tax Officer. But the Appellate Assistant Commissioner allowed the claim and this was confirmed by the Tribunal. On a reference:

Held, that, on the facts, the expenditure was one incurred for the purpose of the assessee earning a half share of the profits in the firm and hence the Tribunal was right in allowing the claim of the assessee under section 10(2)(xv) of the Indian Income‑tax Act, 1922.

Basantlal Gupta v. Commissioner of Income‑tax (1963) 50 I T R 541 ref.

V. Balasubrahmanyan and J. Jayarman for the Commissioner.

K. Srinivasan, D. S. Meenakshisundaram and K. C. Rajappa for the Assessee.

We do not think there is much in this reference. The question referred to us is :‑

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the claim of the assessee for deduction of salary, commission and travelling expenses paid to Sri Adaikappa Chettiar, from his share income in the firm of M/s. S. K. Pictures, Tirunelveli "

The assessee and one S. Kalyanasundaram Pillai entered into a partnership with effect from June 1, 1957. The name of the firm was to be S. K. Pictures, registered with the Registrar of Firms, Madras. After reciting the capital structure of the firm and providing for interest for any advance made by Kalyanas undaram Pillai to the firm, the partnership deed mentioned the objects of the business. viz., to finance production of pictures, take pictures for distribution for entire area and for any area and arrange production of pictures and also take pictures on commission basis for distribution and all other connected with the cinema business. It contained a further provision:‑

"Sri S. K. Kalyanasundaram Pillai is to operate on bank accounts and shall navel, control over the entire management and Sri S. Meyyappan is to look after the work in connection with the production or supervision of productions at Madras and render his full services for which he is entitled to half share of profits."

The Tribunal has found as a fact that the assessee engaged one V. R. C. R. M. Adaikappa Chettiar as his full‑time manager for a period of 2 years commencing from June 1, 1957, to look after all his interests manage and assist him in the work he is expected to execute under the terms of the partnership. That this Adaikappa Chettiar as an employee was paid salary, allowance, etc., has not been disputed. For the year 1 958‑59, the return was a loss, in regard to the assessee's share of income and, for that year, he also claimed an allowance of Rs. 7,000 paid by way of salary to Adaikappa Chettiar and Rs. 867 towards travelling expenses paid to him. The Income‑tax officer rejected the claim of the assessee to deduct those outgoings from the assessee's share income, on the view that the shire income had been arrived at after allowance of expenses permissible under section 10 of the Act in the hands of the firm. For the subsequent two years also, the Officer took a similar view. The Appellate Assistant Commissioner differed, with whom the Tribunal agreed. That is how the reference has been initiated by the Commissioner of Income‑tax.

Basantlal Gupta v. Commissioner of Income‑tax ((1963) 50 I T R 541) held that it could not be laid down as a general proposition that, in determining the income of an assessee who was a partner, no deduction under section 10(2) of the Income‑tax Act could be made from his share of income in the firm after the share had been ascertained. The correctness of this proposition is not disputed before us: nor can the point be raised for the Commis sioner based on the objection that there could be no delegation by au agent of his duties, because, it had never been mooted either before the revenue or the Tribunal. Mr. Balasubranyan's limited contention is that the expenditure claimed by the assessee as allowance in each of the years was expenditure incurred in the earning of the firm's income and not the share income of the assessee. It is said that the expenditure was incidental to the supervision and management of ‑ the firm's business, which was the duty of the assessee to perform under the terms of the partnership and, therefore, in that sense, the expenditure could properly be deducted only from the income of the firm, and it could not said to be expenditure incurred for purposes of earning the assessee's share income in the firm. It seems to us that the question is one more of fact than of law; it is not even a mixed question of law and fact. In each case, it has to be decided, in the light of the particular facts, whether the expenditure claimed as deduction was incurred for the purpose of earning the income in question which is brought to charge at the hands of the assessee. If the finding is positive, the claim for deduction under section 10(2)(xv) will be well‑founded.

Now, in this case, one of the terms of the partnership, which has been extracted in the earlier part of this judgment, shows, without doubt, that the half share of the profits of tt,e firm paid to the assessee was in consideration of his services described in detail. If he did not perform the services, he would not be entitled to earn his share of the profits. When he did the service by employing some one and, for that purpose, incurred expenditure, it is obvious that the expenditure has been incurred for the purpose of rendering the service to the firm on his behalf which alone would entitle him to his half share of the profits. The expenditure is, therefore, one incurred for the purpose of the asaessee earning a half share of the profits in the firm.

The question is answered against the revenue with costs. Counsel's for Rs. 250.

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