Ramaprasada Rao, J.
1. The revenue aggrieved against the order of theMadras Agricultural Income-tax Appellate Tribunal, Madras, in AppellateTribunal Appeal No. 131 of 1964, have come up to this court in revision.Messrs. Tipperary Estates Company, Yercaud, Salem District, is a partnership firm. Besides the partners, who associated themselves in the firm,there was a managing partner. Under the terms of the partnership themanaging partner, because of certain functions undertaken by him, was tobe paid a salary of Rs. 6,000 per year. Another partner, Sri V. Natarajan,was paid a sum of Rs. 2,150, since he undertook to supervise the estate andattend to its field work. The Tribunal had also noted that there were stranger partners in the firm and none has raised any objection to the payment of such salary to one of the partners, because he rendered actual service to the estate. The firm claimed a deduction of a sum of Rs. 8,150 made up of the salary paid to the managing partner as well as the partner, Mr. V. Natarajan, under Section 5(e) of the Madras Agricultural Income-tax Act, 1955. The assessing officer allowed the salary paid to the managing partner, but disallowed the sum of Rs. 2,150 which was paid to the other partner. When the matter was taken up in appeal before the Assistant Commissioner, he was of the view that the entire amount of Rs. 8,150 should be disallowed. The Tribunal, on appeal, after noticing the respective duties undertaken by both the managing partner and the other partner, were satisfied that the entire sum of Rs, 8,150 was to be allowed as an expenditure incurred in the accountable year laid out or expended wholly or exclusively for the purpose of the enterprise. The Commissioner of Agricultural Income-tax, aggrieved against this order, has come up in revision.
2. Learned Government pleader contends that whatever may be said of the allowance given by the Tribunal in the matter of the payment effected to the managing partner, the same principle ought not to be applied to the payment made by the firm to Sri V. Natarajan, who was a partner along with others. His case is that the expenditure when compared to the pattern of the working of the company, which has incurred a loss in the year of account, is not only excessive but appears to be motivated. Learned counsel for the assessee, however, invited our attention to the ratio in State of Madras v. Moulvie Estate, : 70ITR138(Mad) and contended that the matter is concluded by authority and the Tribunal was right in allowing the deduction.
3. We are unable to agree with the contentions of the learned Government pleader. The facts noted in the instant case are that the managing partner was looking after the employment of staff, raising of finance for the estate, and borrowing on bank account and looking after the court work of the firm besides being made responsible for the maintenance of correct accounts. Such services rendered by the managing partner viewed cumulatively satisfy the well-known test, if a partner, be he a managing partner or a partner per se, is entitled to such additional remuneration; if such payments were not made with any oblique or designed purpose of evading the tax on normal profits; such an evasion or such a design must be found as a fact and it must appear on record. No doubt each case has to be decided on its own merits. In the instant case the finding of the Tribunal that the managing partner has indeed undertaken variegated service for the benefit of the firm establishes that he was rendering service de hors a partner and that, therefore, he was entitled to it qua a servant of the firm. It was this which has been clearly laid down by this court in State of Madras v. Moulvie Estate, : 70ITR138(Mad) , The learned Chief Justice, rendering the judgment, said :
'It is a problem to be answered in each case, whether what is, sought to be claimed as an allowance is a real expenditure laid out for the purpose of the business, in the intant case for the purpose of the land. If the expenditure, in comparison with the total profits, is excessive or is a device to escape tax, it will obviously be disallowed and included in the chargeable profits.
4. Taking advantage of the import in the latter part of the observation as above, it is contended for the revenue that this firm, though it incurred a loss, paid salary to its managing partner or the other partner to evade tax and it was only a machinery adopted by them as a device to escape tax. This contention is not well-founded, for the reason that the managing partner has been found by the Tribunal to have rendered service other than that expected of a partner in a firm like the one under review.
5. Even so, the salary paid to Sri V. Natarajan, who is one other partner of the firm, has to be allowed as deduction. The Tribunal noticed that the estate had no superintendent and the above partner exercised such powers as a superintendent and attended to the field work connected with the estate. These are facts which are not controverted. In such circumstances, we are unable to say that the payment to Sri V. Natarajan was a device to escape tax.
6. The Tribunal came to the correct conclusion and this tax case is dismissed without costs.