D.R. Khanna, J.
(1) M/S. K. C. Raj & Co. is a partnership concern having four partners. In the partnership deed it was recited that three of the partners, namely, Prern Nath, Bal Kishan and Kishan Lal, had entered into partnership in representative capacities of their respective Hindu Undivided Families. They held the status of Kartas in those families. The firm allowed various amounts as diaries to these partners for the services rendered by them to the partnership as working partners. They claimed that they were being paid the salaries in their individual capacities, and not as Karta of their Hindu Undivided Families.
(2) The Income-tax authorities, however, disallowed the deductions of those salary amounts in the hand of the firm for the assessment years 1957-58 to 1961-62. Reference in this regard was made to Section 10(4)(b) of the Income-tax Act. 1922 which prohibited allowance of any expenditure by way of interest, salary, commission or remuneration paid by a firm to any partner of the firm these decisions were upheld in second appeals by the Delhi Bench 'B' of the Appellate Tribunal.
(3) Now, at the instance of the assessed firm, the following question has been got referred under Section 66(1) of the Act for each of the said five years for the opinion of this Court :--
'Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that tile salaries paid to Shri Prem Nath, Shri Bal Kishan and Shri Kishan Lal were not allowable as a Revenue expenditure of the assesses in the assessment years 1957-58. 1958-59. 1959-60, 1960-61 and 1961-62?'
(4) It is now well-settled that a Hindu Undlivided Family cannot, as such, enter into a contract or partnership with another person or persons. The Karta of the Hindu Undivided Family, however, may and frequently does enter into partnership with others on behalf of and for the benefit of his joint family. But when he does, so the other members of the family do not, vis-a-vis the outsiders become partners in the firm. They cannot interfer in the management of the firm or claim any account of the partnership business or exercise any of the rights of the firm. So far as the firm and its ether partners are concerned, it is the Karta who alone is and, in law, recognised as a partrier. Whatever arrangement a partner might be having with his family with regard to the share income from the partnership, the same is essentially an arrangement inter-e that partner and the family. The firm as such docs not come into the picture. Our view finds support from the observations of the Supreme Court in the case of The Commissioner of Income-tax v. Kalu Babu Lal Chaiid, 37 I.T.R. 323.
(5) A persual next of the provisions of Section 10(4)(b) of the Income-tax Act, 1922, shows that it placed an absolute prohibition against allowance of expenditure in the nature of interest, salary or commission paid by a firm to any partner. The same is not permissible deduction in the hand of the firm. It does not make the slightest difference whether the person joining the firm as a partner enters it as an individual or in representative capacity as Karta of his Hindu Undivided Family. In fact, as noted above so far as the family is concerned, it recognises him only as a partner. It has nothing to do with the arrangement that he might be having with his family. Our view again finds support from a number of decisions of different High Courts, reported as in A.S.K. Rathnaswamy Nidar Firm v. Commissioner of Income-tax, Madras : 58ITR312(Mad) ; Girdhari Lal Ghasi Ram v. Commissioner of Income-tax, West Bengal : 69ITR890(Cal) ; PannaJal Girdhari Lal v. Commissioner of Income-tax, Delhi : 81ITR624(Delhi) : N. M. Anniah & Co. v. Commissioner of Income- tax, Mysore : 101ITR348(KAR) ; and Commissioner of Income-tax v. London Machinery Co., 117 I.T.R. 11 (Allahabad High Court).
(6) The Full Bench decision of the Allahabad High Court in Commissioner of Income-tax v. Ram Laxman Sugar Mills : 90ITR73(All) , is entirely distinguishable inasmuch as the salary allowed there was not to the partner in his capacity as such. Rather the Central Government had set up a management board of partners under the Essential Supplies (Temporary Powers) Act. Whatever salary was allowed, was in his status as authorised controller which was treated as distinct from his status as partner and involved no element of agency qua the other partners, which is the normal feature of a partnership.
(7) In view of the discussion above, we answer the question referred, in the affirmative. The salary amounts paid to the partners were rightly disallowed as Revenue expenditure in the hand of the firm by the Tribunal. The respondent will be entitled to costs.