RASHIK LAL AND CO.versusCOMMISSIONER OF INCOME TAX, ORISSA

                    RASHIK LAL AND CO.                                       A
                            v.
            COMMISSIONER OF INCOME TAX, ORISSA

                          DECEMBER 9, 1997

           (SUHAS C. SEN ANDS. SAGHIR AHMAD, JJ.]                            B

      Income Tax Act, 1961 : Section 40(b ).

      Income Tw.--Pwtnership finn-AY 1980-81--Commission paid-To a
parlner as a member of HUF-Deductibility of-From income of Jinn-Held:        C
Not deductible-Furthe1; HUF cannot itself become a partner of a
finn-Pa1tnership Act. 1932, Ss.4, 13 and 14.

       The appellant-assessee, the Karta of an HUF, was a partner of a
firm, which was carrying on a number of businesses including mining.
There was an agreement between the appellant and the firm th.at the          D
appellant would receive a certain amount per tonne of the mineral sold by
the firm. In the assessment year 1980-81 the appellant-assessee received a
certain amount as commission. The firm claimed deduction of this amount
from its income. The Income Tax Appellate Tribunal and the High Court
negatived the claim. Hence this appeal.
                                                                             E
      On behalf of the appellant-assessee it was contended that the appel-
lant had not joined the firm as an individual but was really representing
an HUF; that the real partner of the firm was the HUF; and that the
amount of commission paid by the firm to the appellant would not fall
within the mischief of Section 40(b) of the Income Tax Act, 1961.            F
      Dismissing the appeal, this Court

      HELD : 1.1. A firm is a compendious way of describing the in-
dividuals constituting the firm. An HUF directly or indirectly cannot
become a partner of a firm because the firm is an association of in-         G
dividuals. [335-F]

       1.2. Even if a person nominated by the HUF joins a partnership, the
partnership will be between the nominated person and the other persons
of the firm. lt is not possible to hold that an HUF being a fluctuating body
of individuals can enter into a partnership with other individual partners. H
                                   331
    332                   SUPR~ME COURT REPORTS [1997] SUPP. 6 S.C.R.

A It cannot do indirectly what.it cannot do directly. If a Karta or any other
    member of the HUF joins a partnership, he can do so only as an individual.
    His rights and obligations vis-a-vis other partners are determined by the
    Partnership Act, 1932 and not by Hindu Law. Whatever may be the
    relationship between· an HUF and its nominee partner, in a partnership,
    neither the HUF nor any member of the HUF can claim to be a partner or
B   connected with the partnership through a nominee. [337.-F-H; 338-A]

          Dulichand Laxminarayan v. CIT, 29 ITR 535, followed.

          2.1. The Partnership Act contains various provisions regulating the
C relationship between partners. All these provisions will apply to a partner
    who represents another body. The HUI< who has a nominee partner in a
    firm has neither any right nor any obligation nuder the provisions of the
    Partnership Act. There is no way that an HUF can intrude into the relation-
    ship created by a contract between certain individuals. [338-E-H; 339-C-D]

D          2.2. Section 13 of the Partnership Act lays down that a partner is not
    entitled to receive any remuneration for taking part in the conduct of the
    business. There, however, can be a special contract to the contrary in which
    case, the provisions of that contract will prevail. Section 40(b) of the
    Income Tax Act, 1961 will apply even when there is such a special contract.
    Any commis.sion paid by a firm to its partner will not be permitted as
E   deduction from the business income of the firm. If a claim is made by a
    partner that he is representing an HUF or any other body of persons then
    the position in law will not be any different. [339-E-G]

          Blij Mohan Das Laxman Das v. CIT, 223 ITR 82.'5 and Suwalal
F Anandi/al Jain v. CIT, 224 ITR 753, held inapplicable.
          Mulla's Hindu Law, 16th Edu., p. 265, referred to.

         3.1. Under the Income Tax Act, 1961, 'firm', 'partner' and
  'partnership' have been given the same meaning as assigned to them in the
G Partnership Act. But the expression 'partner' has been extended to include
  any person who, being a minor , has been admitted to the benefits of a
  partnership. Therefore, th~re is no scope for any argument that even
  though under the Indian Partnership Act, an HUF not being a 'person'
  cannot be a partner, but the payment of commission to the nominee partner
  will tantamount to payment to the HUF and, therefore, such payment will
H not come within the mischief of Section 13 of the Partnership Act or Section
                 RASHIK LAL AND CO. v. C.I.T. [SEN, J.]                     333
40(b) of the Income Tax Act. [341-E-F]                                            A
      3.2. The very fact that individual shares of the partners have to be
specified and that such partners must personally sign the partnership deed
and also the application for registration go to show that even if a person
joins a firm as a representative of an HUF or any other body 01· association,
within the firm his position is that of an individual.[342-B]                     B

      CIT v. Bagyalakshmi, 55 ITR 660, followed.

      4. The provisions relating to assessment of the firm should not be
conftrued in a way to defeat its object. Section 40(b) forbids deduction of
any amount paid by way of commission to a partner of the firm. The C
commission received by him from the partnership firm cannot be allowed
  .
as a deduction .from the business income of the partnership.
                                                          [343-G-H; 344-A]
      CIVIL APPELLATE .JURISDICTION: Civil Appeal Nos. 4589-90
~~-                                                                               D
     From the Judgment and Order dated 1.ll." 1           .,:   !he Orissa High
Court in S.J .C. No. 36 of 1985.

     B. Gupta, Mrs. Rakhi Ray, Ms. Bina Gupta and Mrs. T. Sudha for
the Appellant.                                                                    E
      B. Krishna Prasad for the Respondent.

      The .Judgment of the Court was delivered by

      SEN, J. The following question of law was referred by the Tribunal          F
to the Orissa High Court under Section 256(1) of the Income Tax Act,
1961:

        "Whether on the facts and in the circumstances of the case, the
        commission paid by the assessee-firm to Sri Rashiklal P. Rathor G
        (individual) is allowable under section 40(b) of the Income Tax
        Act, 1961 as a deduction while computing the business income of
        the assessee."

      The assessee is a partnership firm carrying on a number of businesses
including sale and purchase of various commodities as well as mining. The H
    334                   SUPREME COURT REPORTS (1997] SUPP. 6 S.C.R.

A partners of the firm were :
             (1) Popatlal Devram

             (2) .Tayantilal Jagmal

             (3) Pragji Devram
B
             (4) Ratilal Odhavji

             (5) Rashiklal P. Rathor

C       Popatlal is Rashiklal's father. On 1.4.1967, there was an oral partition
  of the share of Popatlal in the firm amongst Popatlal, his wife and his two
  sons including Rashiklal. The assets of Rashiklal continued to be invested
  in the partnership firm. Rashildal was Karta of a smaller HUF. On
  17.10.1978, there was an agreement between Rashiklal and the firm Rashik-
  lal and Company that Rashikalal will receive 37 paise per tonne of mineral
D sold by the firm. In the assessment year 1980-81 Rashiklal received a sum
  of Rs. 28579 as commission. The firm claimed deduction of this amount
  from its income. The claim was negatived by the Income Tax Officer. The
  Appellate Assistant Commissioner allowed the appeal holding that the
  commission was paid to Rashiklal in his individual capacity and not as
E Karta of the smaller HUF which is the partner of the firm. Since the
  payment was not made to the partner, Section 40(b) of the Income Tax
  Act was not attracted. The amount of commission paid to Rashiklal could
  not be included in the income of the firm. On further appeal by the
  Revenue, the Tribunal held that Section 40(b) of the Income Tax Act
  clearly applied in this case. Payment to Ra.shiklal will be payment to a
F partner. The partnership firm could not claim any deduction for this
  payment from its income. The High Court on reference held that there was
  clear material that Rashiklal had invested his joint family funds to enter
  into the partnership. Payment was made to Rashiklal who was a partner.
  Accordingly, the Tribunal was correct in coming to the conclusion that
G Section 40(b) will be applicable in this case. The firm was not entitled to
  claim any deduction on account of payment of commission to one of its
  partners.

         The firm has come up in appeal against the judgment of the High
    Court. Section 40(b) of the Income Tax Act, at the material time, stood as
H   under:
                       RASHIKLALAND CO. v. C.l.T. [SEN,J.]                     335
             "40. Notwithstanding anything to the contrary in sections 30 to 39,      A
             the following amount shall not be deducted in computing the
             income chargeable under the head "profits and gains of business
             or profession."

             (a)   x    x    x    x    x    x     x    x    x

-            (b) In the case of any 3.rm, any payment of interest, salary, bonus,
             commission or remuneration made by the firm to any partner of
                                                                                      B


             the firm."

           In our view, the answer to the question raised in this case is self-evi'   C
    dent. There is no dispute that Rashiklal was a partner of the assessee-firm.
    For assessment of the firm under the head profits and gains of business
    and profession any payment of commission by the firm to any partner of
    the firm will not be allowed as deduction. The firm has paid a commission
    of Rs. 28579 to Rashiklal and has claimed that amount as deduction. Such
    deduction is not permissible in clear terms of Section 40(b).                     D

          The language of the Section is simple and clear. But to complicate
    the matter an argument was sought to be made that Rashiklal had not
    joined the firm as an individual but was really representing an HUF. The
    real partner of the firm was the HUF. The payment to Rashiklal did not ' E
    amount to payment of commission to the HUF which was the real partner.
    Therefore, the amount of com.mission paid by the firm to a non-partner or
    a partner who had joined the firm in a representative capacity, will not fall
    within the mischief of Section 40(b ).

          We are unable to uphold this contention for a number of reasons. A          F
    firm is a compendious way of describing the individuals constituting the
    firm. An HUF directly or indirectly cannot become a partner of a firm
    because the firm is an association of individuals.

          In the case of Du/ichand La.xminarayan v. Commissioner of Income G
    Tax, 29 ITR 535, it was held by a Bench of three Judges of this Court that
    a firm is not a "person" and as such was not entitled Lo enter into a
    partnership with another firm or an HUF or an individual. In that case, an
    individual, a joint family and three firms purported to enter into a partner-
    ship. The agreement of partnership was signed by the individual partner,
    the· Karla of the joint family and one partner each of the three firms. The H
    336                   SUPREME COURT REPORTS (1997] SUPP. 6 S.C.R.

A firm applied for registration under Section 26A of the Income Tax Act.
    The application was signed by the aforesaid five individuals. This Court
    held that there could no question of granting registration to a partnership
    purporting to be one between three firms, an HUF and an individual. In
    coming to this conclusion, this Court relied on the provisions of Indian
    Partnership Act wherein, 'partnership', 'partner', 'firm' and 'firm name'
B   were defined in the following manner :

            "4. Definition of "partnership", "partner", "firm" and "firm name" :
                                                                                    -
            "Partnership" is the relation between persons who have agreed to
c           share the profits of a business carried on by all or any of them
            acting for all.

               Persons who have entered into partnership with one another
            are called individually "partners" and collectively "a firm", and the
            name under which their business is carried on is called the "firm
D           name •
                  11 11




    S.R. Das, CJ. speaking for the Court observed :

            "This Section clearly requires· the presence of three elements,
            namely, (l) that there must be an agreement entered into by two
E
            or more persons; (2) that the agreement must be to share the
            profits of a business; and (3) that the business must be carried on
            by all or any of those persons acting for all. According to this
            definition "persons" who have entered into partnership with one
            another are collectively called a "firm" and the name under which
F           their business is carried on is called the "firm name". The first
            question that arises is as to whether a firm as such can enter into
            an agreement with another firm or individual. The answer to the
            question would depend on whether a firm can be called a "person"."

G         Das, CJ., thereafter, went on to examine the meaning of the word
    "person" in the Partnership Act. It noted that "person" had not been defined    r,._
                                                                                    I
    in the Partnership Act. However, the General Clauses Act, 1897, had
                                                                                    '
    defined 'person' in Section 3(42) as under:

             "Person" shall include any company or association or body of
H            individuals whether incorporated or not."
                    RASHIKLALAND CO. v. C.I.T. [SEN,J.]                    337
1
          After referring to the definition of 'person' in the General Clauses    A
    Act, Das, C.J. observed that the firm was not a company but was certainly
    an association or body of individuals.

          The Court, however, after examining the scheme of the Partnership
    Act and the corresponding provisions of the English Law on the subject,
    held that the definition given to "person" by the General Clauses Act could   B
    not be extended to the Partnership Act having regard to the various
    provisions of that Act. The Court concluded :

            "It is clear from the foregoing discussion that the law, English as
            well as Indian, has, for some specific purposes, some of which are C
            referred to above, relaxed its rigid notions and extended a limited
            personality to a firm. Nevertheless, the general concept of partner-
            ship, firmly established in both systems of law, still is that a firm
            is not an entity or "person" in law but is merely an association of
            individuals and a fi1111 name is only a collective name of those
            individuals who constitute the finn."                                 D

           The view of this Court was that when Section 4 of the Partnership
    Act spoke of "persons" who had entered into partnership with one another
    it could only be individuals and not a body of persons. A body of persons
    like a firm could not enter into partnership with other individuals.
                                                                                  E
           An HUF cannot be in a better position than a firm in the scheme of
    the Partnership Act. The reasons that led this Court to hold that a firm
    cannot join a partnership with another "individual" will apply with equal
    force to an HUF. In law, an HUF can never be a partner of a partnership
    firm. Even if a person nominated by the HUF joins a partnership, the · F
    partnership will be between the nominated person and the other partners
    of the firm. Having regard to the definition of "partnership" and "partners"
    and in view of the principle laid down in Dulichand's case (supra), it is not
    possible to hold that an HUF being a fluctuating body of individuals, can
    enter into a partnership with other individual partners. It cannot do in- G
    directly what it cannot do directly. If a Karta or any other member of the
    HUF joins a partnership, he can do so only as an individual. His rights and
    obligations vis-a- vis other partners are determined by the Partnership Act
    and not by Hindu law. Whatever may be the relationship between an HUF
    and its nominee partner, in a partnership, neither the HUF nor any
    member of the HUF can claim to be a partner or connected with the H
    338                   SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R.'

A partnership through a nominee. Where the Karta of an HUF enters into a
  partnership agreement with a stranger, the Karta alone in the eye of law is
  the partner. If any payment by the firm to a partner is prohibited by law,
  the Karta cannot be heard to say that the payment was received by him not
  as a partner but in some other capacity. Within the partnership, the Karla
  is a partner like any other partner with whom he has entered into a
B partnership agreement individually. It is essential to have an agreement
  between the partners to form a partnership. An HUF not being a "person"
  cannot enter into an agreement of partnership. If the Karla of an HUF
  enters into partnership with a stranger, upon the death of the Karta, the
  partnership will stand dissolved. In the absence of a contract to the
C contrary, another member of the family cannot step into the shoes of the
  Karla claiming that the Karla was merely representing the HUF and the
  real partner was the HUF. A Karta who enters into a contract of partner-
  ship with a stranger may be accountable to the other members of the HUF
  for the profits received from the partnership business. But that is something
D between the Karta and the HUF. But so far as the partnership firm is
  concerned, the Karta is a partner like any other partner. If a commission
  is paid to a partner who happens to be a nominee of an HUF, the
  commission is not paid to the HUF. It is paid by the firm to one of its
  individual partners. The partner may have to account for the monies
   received from the firm to another person or another firm or an association
E of persons or an HUF. But that will not alter the fact that commission was
   paid by the firm to one of its partners.

         The Partnership Act contains various prov1s1ons regulating the
  relationship between partners. The partners are bound to carry on the
F business of the firm to the greatest common advantage, to be just and
  faithful to each other and tu render true account and true information of
  all things affecting the firm to any partner or his legal representative. Every
  partner has a right to take part in the conduct of the business. Every
  partner is bound to attend diligently to his duties in the conduct of the
  business. Any differences arising as to ordinary matters connected with the
G business may be decided by majority of the partners and every partner shall
  have tlie right to express his opinion before the matter is decided. No
  change can be made in the nature of the business without the consent of
                                        a
  all the partners. Every partner has right to have access to and to inspect
  and copy any of the books of the firm. All these provisions will apply lo a
H partner who represents another body. The HUF who has a nominee
                 RASHIKLALAND CO. v. C.I.T. (SEN,J.]                      339
partner in a firm has neither any right nor any obligation under the A
provisions of the Partnership Act. Section 13 provides that a partner is not
entitled to receive remuneration for taking part in the conduct of the
business. The partners are entitled to share equally in the profits earned
and shall contribute equally to the losses sustained by the firm. Where a
partner is entitled to interest on the capital s.ubscribed by him, such interest B
shall be payable only out of profits. A firm has to indemnify a partner in
respect of payments made and liabilities incurred by him in the ordinary
and proper conduct of business and in doing such act, in an emergency
for the purpose of protecting the firm from any loss as would be done by
a person of ordinary prudence under similar circumstances. The partner
has also a duty to indemnify for any loss caused to the firm by his wilful C
neglect in the conduct of the business of the firm.

       All these provisions relating to mutual rights and liabilities are only
applicable to the individual partners who are members of the firm. There
is no way that an HUF can intrude into the relationship created by a D
contract between certain individuals. The only right of the HUF is possibly
to call upon its nominee partner to render accounts for the profits that he
has made from the partnership business. But that is something between the
nominee and the HUF with which the partners!:iip is not concerned.

                                                                                E
      The specific provision in Section 13 of the Partnership Act that a
partner is not entitled to receive any remuneration fer taking part in the
conduct of the business has been interpreted to mean that every partner is
bound to attend diligently to the business of the firm. For doing his duties
he cannot charge his co- partners any sum or remuneration whether in the
shape of salary, commission or otherwise on account of the trouble taken        F
by him in conducting the partnership business. There, however, can be a
special contract to the contrary in which case, the provisions of that
contract will prevail.


       Section 40(b) of the Income Tax Act will apply even when there is G
such a special contract. Any commission paid by a firm to its partner will
not be permitted as deduction from the business income of the firm. If a
claim is made by a partner that he is representing an HUF or any other
bod~' of persons then the position in law will not be any different. The HUF
is not and cannot be a partner in a partnership firm. The remuneration or H
    340                   SUPREME COURT REPORTS (1997) SUPP. 6 S.C.R.

A the commission that is paid to the partner cannot be claimed to be a
    remuneration or commission paid to the HUF. The partner may be
    accountable to the family for the monies received by him from the
    partnership. But in the assessment of the firm, the partner cannot be heard
    to say that he has not received the commission as a partner of the firm but
B   in a different capacity.

          We were referred to two decisions of this Court on this point, Brij
    Mohan Das La>.man Das v. ClT 223 ITR 825 and Suwalal Ana11dilal Jain
    v. Co111111issio11er of !11come Tax, 224 ITR 753. Both the cases dealt with
    payment of interest to a partner who had joined the firm in a representative
C   capacity. Section 40(b) prohibits deduction on account of payment of
    interest, salary, bonus or remuneration by a firm to any partner of the firm.
    Explanation II was added to Section 40(b) specifically providing that where
    an individual was a partner in a firm in a representative capacity for and
    on behalf of any other person, the interest paid by the firm to such
D   individual shall not be taken into account for the purpose of clause (b) of
    Section 40.

           This Court held that in view of this Explanation, when a Karta of an
    HUF had joined a firm representing his HUF and had made deposits in
    the firm in his individual capacity, the interest paid to him could not be
E   disallowed by reason of the Explanation II added to Section 40(b) of
    Income Tax Act, 1961. It was further held that the explanation was only
    clarificatory . It is difficult to agree with that proposition because the
    Explanation was added by the Taxation Laws (Amendment) Act, 1984 with
    effect from 1.4.1985, i.e., from the assessment year 1985-86. By adding the
p   Explanation, the legislature altered the law prospectively on and from          .'
    1.4.1985. If what was contained in the Explanation was already the law in
    force, then giving effect to the Explanation from 1.4.1985 does not make
    any sense.

          However, in the case before us, no question of payment of any
G interest is involved. A commission was paid by the firm for the services
    rendered by the partner. Such commission cannot be paid because oI the
    provisions of Section 13 of the Partnership Act in the absence of a special
    contract. Even if a special contract exists, Section 40(b) of the Income Tax
    Act prohibits allowance of such commission as deduction from the business
H   income of the firm.
                RASHIK LALAND CO. v. C.I. T. [SEN, J.]                  341

      The argument that Rashiklal had joined the firm Rashiklal &              A
Company not as an individual but in a representative capacity overlooks
the fact that the partnership Rashiklal & Company is a compendious way
to describe the individuals who are partners of the firm. The other partners
of the firm have a contractual relationship with Rashiklal only. Section
40(b) categorically disallows any deduction of payment of commission to a      B
partner.

      The position of a person belonging to an HUF who has joined a firm
on behalf of the family has been explained in M ulla' s Hindu Law, Sixteenth
Edition, page 265:
                                                                               c
        "Not all members of the joint family, but only such of its members
        as have, in fact, entered into partnership with the stranger, become
        partners. The manager, no doubt, is accountable to the family, but
        the partnership is exclusively one between the contracting mem-
        bers including the manager and the stranger. Such a partnership        D
        would be governed by the provisions of the Indian Partnership Act,
        1932, with the result that if the manager died, the partnership
        would be dissolved on his death."

      Under the Income Tax Act, 1961, 'firm', 'partner' and 'partnership'
have been given the same meaning as assigned to them in the Partnership E
Act. But the expression 'partner' has been extended to include any person
who, being a minor, has been admitted to the benefits of a partnership.
Therefore, there is no scope for any argument that even though under the
Indian Partnership Act, an HUF not being a 'person' cannot be a partner,
but the payment of commission to the nominee partner will tantamount to F
payment to the HUF and therefore, such payment will not come within the
mischief of Section 13 of the Partnership Act or Section 40(b) of the
Income Tax Act. To repeat what has. been stated in Mulla's Hindu law,
only the members who have entered into partnership are to be regarded
as partners. The position of the other members is no higher than G
sub-partnership.

      The application for registration of a firm has to be made under
Section 184 of the Income Tax Act. It is specifically provided that:

        (1) the partnership must be evidenced by an instrument in writing; H
    342                   SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A           (2) the individual shares of partners must be specified in that
            instrument;

            (3) the application for registration shall be signed by all the
            partners.

B
           The very fact that individual shares of the partners have to be
    specified and that such partners must personally sign the partnership deed
    and also the application for registration go to show that even if a person
    joins a firm as a representative of an HUF or any other body or association,
    within the firm his position is that of an individual. He may have an
C   a&rreement with a third party to divide the profits received from the firm,
    but that agreement does not bind the firm nor does it alter the position of
    the partners under the Partnership Act or the Income Tax Act. This aspect
    of the matter was explained by Subba Rao, J. (as his Lordship, then was)
    in the case of Commissioner of Income Tax v. Bagyalakshmi & Co., 55 ITR
D   660 in the following words :

            "A partnership is a creature of contract. Under Hindu law a joint
            family is one of status and right to partition is one of its incidents.
            The income-tax law gives the Income-tax Officer a power to assess
            the income of a person in the manner provided by the Act. Except
E           where there is a specific provision of the Income-tax Act which
            derogates from any other statutory law or personal law, the
            provision will have to be considered in the light of the relevant
            branches of law. A contract of partnership has no concern with
            the obligation of the partners to others in respect of their shares
F           of profit in the partnership. It only regulates the rights and
            liabilities of the partners. A partner may be the karta of a joint
            Hindu family; he may be a trustee; he may enter into a sub-partner-
            ship with others; he may, under an agreement, express or implied,
            be the representative of a group of persons; he may be a benamidar
G           for another. In all such cases he occupies a dual position. Qua the
            pmtnership, he functions in ~1is personal capacity; qua the third
            palties, in his representative capacity. The third parties, whom one
            of the partners represents, cannot enforce their rights against the
            other partners nor the other partners can do so against the said
H           third parties."
                 RASHIK LAL AND CO. v. C.I.T. [SEN, J.]                    343

      This judgment given by a bench of three Judges of this Court is a           A
complete answer to the argument advanced on behalf of the assessee. A.
partner does not act in a representative capacity in the partnership. He
functions in his personal capacity like any other partner. The provisions of
the Partnership Act and the Income Tax Act relating to partners and
partnership firms will apply in full force in respect of such a partner. If any   B ·
remuneration is paid or a commission is given to a partner by a partnership
firm, Section 40(b) will apply even if the partner has joined the firm as a
nominee of an HUF. The Hindu Undivided family or its representative
does not have any special status in the Partnership Act. Although the
partnership firm is not a legal entity, it has been treated as an independent     C
unit of assessment under the Income Tax Act. The assessment of a firm
will have to be made strictly in accordance with the provisions of the
Income Tax Act. The law has to be taken as it is. Section 40(b) applies to
certain payments made by a firm to its partners. Neither the firm nor its
partners can evade the tax law on the pretext that although in law he is a
partner but in reality he is not so. He may have to hand over the money to        D
somebody else. That may be his position qua a third party. But the firm
has nothing to do with it. It has paid the commission to one of its partners.
It cannot get any deduction in its assessment for that payment because of
Section 40(b) of the Act expressly prohibits such deduction.
                                                                                  E
      The basic principle that a firm is a compendious mode of describing
the persons constituting the firm must not be overlooked. It is the
individuals constituting the firm who are its partners. The partner may be
under an obligation to hand over the monies received by him to somebody
else by virtue of a sub- contract or any other arrangement. That will not         F
change the character of the payment by the firm to its partner or the status
of the partner in the firm. The firm is not entitled to get any deduction on
account of payment of commission to a partner merely because the partner
has an obligation to share the money with somebody else. So far as the firm
was concerned, the commission was paid to one of the partners in his
personal capacity.                                                                G

      The provisions relating to assessment of the firm should not be
construed in a way to defeat its object. Section 40(b) forbids deduction of
any amount paid by way of commission to a partner. In the instant case,
Rashiklal is a partner of the firm Rashiklal and Company. The commission          H
    344                     SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R.

A received by him from the partnership firm cannot be allowed as a
    deduction from the business income of the partnership.

             The appeals, therefore, fails and are dismissed with no order as to
    costs.

B   v.s.s.                                                   Appeals dismissed.




                                                                                   I
                                                                                   ...

                                                                                   I