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Commissioner of Income-tax Vs. S. Meyyappan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 97 of 1965 (Reference No. 33 of 1965)
Judge
Reported in[1969]73ITR20(Mad)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantCommissioner of Income-tax
RespondentS. Meyyappan
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateK. Srinivasan, ;D.S. Meenakshisundaram and ;K.C. Rajappa, Advs.
Cases ReferredBasantlal Gupta v. Commissioner of Income
Excerpt:
- - if the finding is positive, the claim for deduction under section 10(2)(xv) will be well-founded......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.5. 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 the 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.....
Judgment:

Veeraswami, J.

1. 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 '

2. 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 Kalyanasundaram 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 have 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.'

3. 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 21/2 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 1958-59, 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 assesses to deduct those outgoings from the assessee's share income, on the view that the share 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.

4. Basantlal Gupta v. Commissioner of Income-tax, : [1963]50ITR541(Mad) . 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 Commissioner based on the objection that there could be no delegation by an agent of his duties, because it had never been mooted either before the revenue or the Tribunal. Mr. Balasubrahmanyan'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.

5. 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 the 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 assessee earning a half share of the profits in the firm.

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


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