1. This is a reference made by the Delhi Bench (B) of the Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as "the Act". The statement of the case submitted by the Tribunal relates to the assessment years 1955-56 and 1956-57. The relevant previous years ended on the 30th September, 1954, and 30th September, 1955.

2. The assessee, who is the applicant in this case, is a firm manufacturing sugar. It owns its mills at Mohiuddinpur in the district of Meerut. For the relevant assessment years it was not accorded registration under Section 26A of the Act. The firm was constituted by a deed of partnership dated the 21st of August, 1939. There were two sets of partners, namely, the partners of the first set represented by Lala Suraj Bhan, the karta of the joint family, styled as M/s. Dinanath Nanak Chand ; the second set consisted of four partners, namely, (1) Lala Devi Prasad, (2) Lala Jwala Prasad (3) Lala Sheo Prasad, (4) Lala Ganpat Prasad, and (5) Lala Matu Ram, Lala Mai Dhan and Lala Mai Dayal. The two sets of partners were to share the profits and losses of the business in equal moieties. On account of certain internal dissensions between the two sets of partners the Government of India was compelled to take action under the Essential Supplies (Temporary) Powers Act, 1946 (XXIV of 1946); on the 6th January, 1953. By this order the Central Government took over the factory and authorised Lala Suraj Bhan and Lala Mai Dhan to work jointly as authorised controllers for the running of the sugar mills. The Central Government determined the sums payable to the two authorised controllers by an order dated the 28th September, 1953. Under this order each of the two authorised controllers was to receive a remuneration of Rs. 2,000 per mensem plus a commission of 1/4 per cent. on the total value of the sugar produced. Subsequently, it appears that, in supersession of the earlier order, the Government of India constituted a board of management for the running of the said sugar mills. In this board there were four persons, namely, (1) Sri Suraj Bhan, (2) Sri Mai Dhan Gupta, (3) Sri Sheo Prasad, and (4) Sri Shri Nath. During the assessment year 1955-56 a total sum of Rs. 74,880 was paid in aggregate to the four members of the board and during the next following assessment year 1956-57 a sum of Rs. 64,700 represented the aggregate amount paid to the said members of the board.

3. In the assessment of the assessee-firm for the assessment year 1955-56 deduction was claimed for an amount of Rs. 74,880 being the remuneration paid to the four members of the board of management during the relevant previous year and in the next following assessment the sum of Rs. 64,700 was claimed as deduction on the same ground, in the computation of the profits of the firm. The Income-tax Officer disallowed the claims of the assessee-firm for both the years and added the amounts in question to the total income for the relevant previous years.

4. The assessee went up in appeal to the Appellate Assistant Commissioner against the assessments made by the Income-tax Officer but the latter turned down the appeal of the assessee and confirmed the assessment.

5. The assessee then appealed to the Tribunal. Before the Tribunal the assessee contended that the payments in question were not made by the firm to the members of the board in terms of the deed of partnership nor in terms of any agreement between the partners inter se. These payments were directed to be made by the Central Government in exercise of the statutory powers conferred on it by the Essential Supplies (Temporary Powers) Act, 1946. It was also pointed out that in the case of at least one member of the board, viz., Sri Mai Dhan, the amount of remuneration paid by the firm had been assessed to tax in his hands as salary. It was, therefore, contended that the case was taken out of the purview of Section 10(4)(b) and the payments made to the members of the board should be allowed as a deduction under Section 10(2)(xv). On behalf of the department, it was contended that Section 10(4)(b) was a bar to the allowance of the remuneration in the assessments of the firm. The department contended that it made no difference whether the payments were made by the Central Government in exercise of its statutory powers or by the partners of the business by an agreement between them inter se.

6. The contention made on behalf of the assessee appears to have found favour with the Tribunal. The Tribunal first referred to the scheme of the Act in regard to the assessment of an unregistered firm. The Tribunal observed that tax is payable by an unregistered firm itself on the profits earned by it. The profits of the firm having been ascertained, the proportionate share thereof was included in the assessment of its partners only for the purpose of computation of the rate of income-tax payable by the partners concerned. The partners do not have to pay tax directly on the amount of the share income which they receive from the firm in view of the provisions of Section 14(2)(a) read with Section 16(1)(b) of the Act. The Tribunal observed that the intention of the legislature in framing Section 14(2)(a) and 16(1)(b) was obviously to avoid double taxation in such cases. In the present case, the Tribunal pointed out that Sri Mai Dhan was assessed to tax on the entire amount of the salary and remuneration received by him from the unregistered firm as one of the members of the board of management. That being so, in the opinion of the Tribunal, it was only fair and equitable that the firm itself should not be taxed on the amount of remuneration which it has paid out to the members of the board of management. The relevant observation of the Tribunal may be quoted here:

"Comprehending the situation as a whole, the meaning of the section seems to be patent and obvious to us viz., that the assessment in a case of an unregistered firm and its partners should be so made as to avoid a double assessment of the same income. If a payment is disallowed in the case of a firm as being a payment to a partner, then, in the assessment of the partner, it should be only taken for rate purposes. This objective has been secured by the two judgments of the Tribunal--one already passed in the case of the recipient (I.T.As. Nos. 3798 and 3799 of 1960-61--assessment years 1954-55 and 1955-56) and the one we propose now to deliver. After carefully considering the matter, we are of opinion that the payments of salary should be allowed."

7. Taking the view as aforesaid, the Tribunal deleted the impugned additions of Rs. 74,880 and Rs. 64,700 from the total income of the assessee-firm for the relevant assessment years.

8. At the instance of the Commissioner of Income-tax the Tribunal has referred the following two questions to this court for opinion :

(1) Whether, on the facts and in the circumstances of the case, a sum of Rs. 74,880 was admissible to the assessee during the assessment year 1955-56, in view of Section 10(4)(b) of the Indian Income-tax Act, 1922 ?

(2) Whether on the facts and in the circumstances of the case the sum of Rs. 64,700 was admissible to the assessee during the assessment year 1956-57, in view of Section 10(4)(b) of the Indian Income-tax Act, 1922 ?"

9. In our opinion the Tribunal has entirely misconceived the legal position and its order in point cannot be sustained.

10. Section 10(4)(b) of the Act runs as follows:

"Nothing in clause (ix) or clause (xv) of sub-section (2) shall be deemed to authorise the allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains; and nothing in clause (xv) of sub-section (2) shall be deemed to authorise . ..

(b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm;..."

11. Thus Clause (b) of Sub-section (4) of Section 10 is a clear bar to the allowance of any payment by way of interest, salary, commission or remuneration by a firm to its partner or partners. As stated by the Supreme Court in the case of Dulichand Laxminarayan v. Commissioner of Income-tax, [1956] 29 I.T.R. 535 (S.C.) a firm is nothing but a compendious name for the partners who constitute it. The partners are entitled to receive the profits of the firm. If the partners appropriate the profits in the shape of salary, commission or remuneration, it is obvious that such appropriation would reduce the amount assessable to tax. As already noted, an unregistered firm has to pay tax on the assessed profits. The partners are not assessed to tax in respect of the share income from such firm, but such share income is included in the total income of the partners only for purposes of computation of the rate of tax payable on their total income. This, as already noted, follows from the provisions of Sections 14(2)(a) and 16(1)(b). The scheme of the Act, therefore, is that while a firm should not be allowed to reduce its profits by payment of salary, commission or remuneration to its partners, there should also be no double taxation of the profits or any portion thereof in the hands of its partners. In the present case, it is true, no doubt, that one of the partners, viz., Sri Mai Dhan, has already been assessed to tax in respect of the remuneration received from the firm as a member of the board of management for the assessment years 1954-55 and 1955-56. It appears that taxation of the remuneration received by Sri Mai Dhan from the firm in his hands was not proper. That does not, however, justify the allowance of any salary, commission or remuneration paid by the firm to either Sri Mai Dhan or the other members of the board of management in contravention of the clear provisions of Section 10(4)(b). The bar imposed Section 10(4)(b) is clear and unambiguous and the fact that the payment of salary and remuneration to the partners, who happened to be also the members of the board of management, was made at the instance of the Government of India is, in our opinion, inconsequential. We are, therefore, of the view that the Tribunal was not justified in allowing deduction in respect of the amounts of Rs. 74,880 and Rs. 64,700, respectively, for the assessment years 1955-56 and 1956-57, in the computation of the profits of the firm. Our answer to the questions referred by the Tribunal is that the amount in question was not admissible to the assessee in view of Section 10(4)(b) for any of the two relevant assessment years. We, therefore, answer both the questions in the negative and in favour of the Commissioner of Income-tax. The Commissioner will get Rs. 200 as costs of this reference.