COMMISSIONER OF INCOME TAX Vs. IRANI K R

JUDGEMENT

(1.) THIS is a reference under sub-s. (1) of s. 66 of the Act at the instance of the CIT. We are here concerned with the asst. yr. 1956-57; the relevant accounting year, however, has not been mentioned in the statement of case. The assessee is a consulting architect and civil engineer. At the material time he was a partner in two registered firms, viz., M/s K.R. Irani & Co. and M/s National Steel Works, Bombay. The firm of National Steel Works, Bombay, was assessed for the asst. yr. 1956-57 and the share income apportioned to the assessee as a partner therein under s. 23(6) of the Act came to Rs. 1,30,265. In his own assessment the assessee claimed a deduction of Rs. 15,337 from the aforesaid amount of Rs. 1,30,265 on the ground that the said sum represented payment of bonus to the staff of M/s National Steel Works made by him in his capacity as a partner. The aforesaid amount of Rs. 15,337 has been debited to the account of the assessee partly on 29th Sept., 1955, and partly on 15th Oct., 1955, in the books maintained by the firm. The payment of the said sum by the assessee to the employees of the National Steel Works was not disputed before the Tribunal. The bona fides of the assessee in making the payment was also not disputed.

(2.) AS already stated, the assessee had claimed a deduction of the said amount of Rs. 15,337 from the amount of his share in the profits of the firm amounting to Rs. 1,30,265. The ITO took the view that payment of bonus, etc., to the workers is a liability of the firm and not of the partners and once the profit from the firm has been computed, no further claims could be put by the assessee as deduction from his share of income unless he can prove that it was absolutely necessary for him to do so in the interest of the firm. According to him there was nothing on the record to show that the payment made by him was wholly and exclusively incurred for the purpose of earning the profits from the firm. The matter was taken in appeal before the AAC, but the appeal was dismissed by him. In his order he observed :

(3.) ON the case stated, we find it difficult to accept any one of the contentions raised by Mr. Joshi. As regards the first contention there was no dispute at any time raised before any of the authorities about the reasonableness or otherwise of the payment claimed to have been made by the assessee to the labour by way bonus. ON the other hand, the statement of case shows that payment has, in fact, been made and the bona fides of the assessee in making the payment was also not in dispute. The reason why such a dispute was not raised by the IT authorities, presumably appear to be the smallness of the amount paid by way of bonus as against the profits earned by the partners.