Mathur, A.C.J:— This is a reference under Section 66(1) of the Income-tax Act, 1922, made by the Delhi Bench of the Income-tax Appellate Tribunal. It relates to the assessment year 1957–58. The Delhi Bench of the Income-tax Appellate Tribunal had made a similar reference in respect of the assessment years 1955–56 and 1956–57 which was answered by this Court in Commr. of Income-tax, U.P v. Ram Laxman Sugar Mills, (1970) 76 ITR 123 (All).
2. Considering that the question of law involved is the same and the reference pertains to the same assessee as in the earlier reference, it is not necessary to give the facts of the case in detail. It can simply be mentioned that the assessee. M/s. Ram Laxman Sugar Mills, Mohiuddinpur, is a firm manufacturing sugar; owning mills at Mohiuddinpur in the district of Meerut. The firm comprises of two groups of partners. On account of certain differences between the partners the Government of India was compelled to take action under Section 3(4) of the Essential Supplies (Temporary Powers) Act, 1946 (Act No. XXIV of 1946) and appointed Sarvasri Suraj Bhan and Maidhan Gupta as Authorised Controllers to work jointly for the running of the sugar mills. Under another order the remuneration payable to the Authorised Controllers was determined by the Government of India. Subsequently the Government of India constituted a Board of Management for the running of the said sugar mills, consisting of four persons who were some of the partners of the assessee firm. From the facts as reported in (1970) 76 ITR 123 (All) it appears that the appointment of the Board of Management was in supersession of the earlier order. During the assessment year 1957–58 a total sum of Rupees 28,422/- was paid to the members of the Board towards remuneration of the Managing Directors, Sri Sheo Prasad and Sri Suraj Bhan, conveyance allowance, driver's salary and for attending meetings of the Board of Management at Delhi. The assessee firm claimed a deduction of this amount, but it was disallowed by the revenue authorities under Section 10(4)(b) of the Income-tax Act, 1922, as it constituted payments made by the firm to partners, and it was consequently added to the total income. The appeal preferred by the assessee was dismissed by the Appellate Assistant Commissioner, but the Income-tax Appellate Tribunal took a contrary view and held that the claim could not be disallowed. At the instance of the Commissioner of Income-tax, U.P the Income-tax Appellate Tribunal has referred to this Court the following question of law for its opinion:
“Whether on the facts and in the circumstances of the case the sums aggregating to Rs. 28,422/- claimed as payments as per details vide para. 3 supra, made to partners for performing certain functions under the Essential Supplies (Temporary Powers) Act was not inadmissible under Section 10(4)(b) of the Income-tax Act, 1922?”
3. The reference came up for hearing before a Division Bench of this Court which expressed the opinion that the decision in (1970) 76 ITR 123 (All) required reconsideration. The matter has now been referred to a Full Bench.
4. The question referred by the Tribunal is not general. It proceeds with the assumption that the partnership continued even during the period an Authorised Controller or the Board of Management was appointed by the Government of India under the Essential Supplies (Temporary Powers) Act, 1946 and the members of the Board of Management were partners of the partnership firm. In fact, the assessee appears to have submitted the return as a partnership firm. The referring order and also the earlier order of the Tribunal shows that no one raised the question that the partnership was in abeyance during the period the management was in the hands of the Authorised Controller or the Board of Management.
5. While entertaining a reference under Section 66(1) of the Income-tax Act, 1922, the High Court acts as an advisory body and does not have the jurisdiction to consider any new fact not raised before and decided by the Tribunal. See Kusumben D. Mahadevia v. Commr. of Income-tax, Bombay City, 39 ITR 540 : (AIR 1960 SC 907) and Commr. of Income-tax, Delhi and Rajasthan v. Mewar Textile Mills Ltd., (1966) 60 ITR 423 (SC). This Court must, therefore, regard the assessee firm as a partnership firm and the members of the Board of Management appointed under the Essential Supplies (Temporary Powers) Act, 1946 to be still continuing as partners of the firm.
6. The appointment was made by the Government of India under the above Act. Remuneration was payable to the members of the Board of Management under the directions of the Government of India. There was no agreement direct or implied, between the partners of the firm for payment of remuneration to the Board of Management appointed under the above Act. The question for consideration, therefore, is whether the payment made by the firm under the directions of the Government of India, i.e, not voluntarily to the Board of Management, not as partners but as members of the Board, even though they were partners of the firm, is covered by Section 10(4)(b) of the Income-tax Act, 1922, and is not to be deducted from the profits of the firm.
7. Section 10(4)(b) runs as below:—
“………… 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;”
8. The sub-section was added to the main enactment under Amending Act No. VII of 1939. Before the incorporation of this sub-section there was some controversy and the law laid down generally was that the nature of the payment must be looked into to determine whether the payment was made as partner or was made in good faith in another capacity. See B.S Mining Co. v. Commr. of Income-tax, Madras, (1922) 1 ITC 176 (Mad); Commr. of Income-tax, Madras v. Subramaniam Chettiar, ILR (1928) 51 Mad 787 : (AIR 1928 Mad 923) (SB); the Electric and Dental Stores, Lahore v. The Commr. of Income-tax, ILR (1931) 12 Lah 663 : (AIR 1931 Lah 341) and Ramakrishna Ramnath Firm of Tirora v. Commr. of Income-tax, Central Provinces, (1929) 4 ITC 171 (Nag). But after the incorporation of Section 10(4)(b) it was immaterial in which capacity the payment was made to the partner. See Commr. of Income-tax, Bihar and Orissa v. Jainarain Jagannath, (1945) 13 ITR 410 : (AIR 1946 Pat 68).
9. It shall be noticed that Section 10(4)(b) has been worded generally to cover “any payment” by way of interest, salary, commission or remuneration made by a firm to “any partner” of the firm. The use of the word “any” at the two places makes it clear that this provision covers all payments to the partners provided that they fall in the category of interest, salary, commission or remuneration. When the provision has been worded generally to cover all payments by way of interest, salary, commission or remuneration to a partner of the firm, the Courts of law will not be justified to restrict its scope, even in fiscal matters, on the supposition that the intention was to cover only those payments which has been made voluntarily by the firm to its partner. It is a settled law that even in taxation matters it is not open to read into the enactment words which are not there or to disregard words which are actually to be found in it. See the Cape Brandy Syndicate v. The Commrs. of Inland Revenue, (1921) 12 Tax Cas 358 and R.A Goodzer and Co., Madras v. Commr. of Excess Profits Tax, Madras, (1948) 16 ITR 367 : (AIR 1949 Mad 407). This Was followed in Commr. of Income-tax v. Veeriah Reddiar, (1969) 73 ITR 162 (Ker). It was on this ground that it was held in these two cases that a payment made by the firm to a partner, though in a different capacity, was to be disallowed under Section 10(4)(b) of the Income-tax Act, 1922.
10. When it is not open to add in Section 10(4)(b) the words “as partner”, on similar grounds there can be no justification to add the word “voluntarily” to cover only payments made voluntarily by the firm to the partners. General words used in the provision must be given their widest scope to cover all payments made, whether voluntary or otherwise. I, therefore, see no reason to depart from the view expressed in (1970) 76 ITR 123 (All).
11. The fact that one of the partners, viz., Sri Mai Bhan has already been assessed to tax in respect of the remuneration received by him, from the firm as a member of the Board of Management shall not make any difference. The law must be interpreted as It is and a different meaning cannot be given simply because it was applied differently to an assessee. To avoid double taxation it shall be open to that person to seek remedy according to law.
12. To sum up the payment of Rs. 23,422/- to the members of the Board of Management, who were partners of the assessee firm, towards remuneration etc. was covered by Section 10(4)(b) of the Income-tax Act, 1922, and was to be disallowed while determining the total taxable income of the assessee firm. The question referred by the Income-tax Appellate Tribunal must, therefore, be replied in the negative.
13. Gulati, J.:— I have had the advantage of reading the judgments prepared by Hon'ble Mathur, Ag.C.J and Hon'able T.S Misra, J. After having considered the matter very carefully, I am inclined to agree with Hon'ble T.S Misra, J. although for different reasons.
14. There is no doubt that Section 10(4)(b) of the Income-tax Act, 1922 creates an absolute bar and no payment made by a inn to a partner by way of interest, salary, commission or remuneration can be allowed as a deduction in computing the net profit of the business carried on by a partnership. The capacity in which a partner receives such payment is not very material. But the payment contemplated by this provision is a contractual payment made in pursuance of a contract between the partners whether express or implied. Other kinds of payments are not covered by this provision. The object underlying this provision is to prevent evasion of tax by a partnership by distributing its profit to the partners in the shape of interest, salary, commission or remuneration. It was not meant to disentitle a firm to the deduction of expenditure incurred for purposes of business as allowed under sub-section (2) of Section 10 of the Income-tax Act. Now the distribution of profit between the partners can only be according to the terms of partnership arrived at between the partners by mutual consent. No payment to a partner even though out of the partnership funds can be said to be a distribution of profit, if the payment has not been made with the mutual consent or in pursuance of the contract of partnership.
15. Now in the instant case the payments by way of remuneration were made to certain partners not in pursuance of the agreement of partnership, but under the directions of the Central Government. The Board of Management was appointed by the Central Government not with the consent of the partners, but under the provisions of the Essential Supplies (Temporary Powers) Act, 1946. The payment made to the Board of Management would be an expenditure incurred for purposes of business and would be an allowable deduction under Section 10(2)(xv). The fact that the Board of Management was comprised of the partners of the firm makes no difference. The Board of Management as it were, was superimposed upon the firm by the Government. The payments made by the firm to the Board for managing its business would be an expenditure deductible in the computation of its income, even though the Board of Management was comprised of some of its partners. In such a case Section 10(4)(b) would not apply.
16. I would therefore, answer the question in the affirmative in favour of the assessee and against the Department.
17. T.S Misra, J.:— The Income-tax Appellate Tribunal, Delhi Benda has referred the under-mentioned question to this Court for opinion.
“Whether on the facts and in the Circumstances of the case the sums aggregating to Rs. 28,422.00 claimed as payments as pen details vide para. 3 supra, made to partners for performing certain functions under the Essential Supplies (Temporary Powers) Act was not inadmissible under Section 10(4)(b) of the Income-tax Act, 1922?”
18. The assessee, an unregistered firm, runs a sugar mill. The assessment year involved in this reference is 1957–58. The partners of the assessee firm were divided into two groups. One group is mentioned in the statement of the case as M/s. Dina Nath Nanak Chand group and the other is mentioned as R.S Chiranji Lal and Sons group. On account of certain internal dissensions between the two sets of partners the Government of India took action under the Essential Supplies (Temporary Powers) Act on 6th January, 1953 and by virtue of the powers conferred by Sections 3 and 4 of that Act the Central Government took over the factory and authorised Sri Suraj Bhan and Sri Mai Dhan Gupta to work jointly as Authorised Controllers for the running of the assessee mill. Subsequently on 28th September, 1953 the Central Government determined the sums payable as remuneration to the Authorised Controllers. At a later stage the Central Government set up a Management Board with four persons. All these four persons were partners of the assessee firm. During the assessment year in question a total sum of Rs. 28,422/- was paid in aggregate to the members of the Board. These payments were disallowed by the revenue authorities under Section 16(1)(b) of the Income-tax Act, 1922, on the ground that they were made to partners by the firm. On appeal the Income-tax Appellate Tribunal allowed these payments following its order for the assessment years 1955–56 and 1956–57 in the I.T.A Nos. 3754 and 3755 of 1961–62. At the instance of the Commissioner of Income-tax, U.P II, Lucknow, the Income-tax Appellate Tribunal referred the aforesaid question to this Court for its opinion. The reference first came up for hearing before a Division Bench of this Court which was of the view that the decision in Commr. of Income-tax v. Ram Laxman Sugar Mills, (76 ITR 123 (All)), which related to this very assessee for the previous years, required re-consideration. That is how the matter has come before this Full Bench.
19. In the case of (76 ITR 123 (All)) (supra) the Division Bench based its opinion on Section 10(4)(b) of the Indian Income-tax Act, 1922. The relevant provisions of Section 10(4)(b) of the Act are 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; …………”
20. Proceeding on the premise that one of the partners of the said firm, viz. Sri Mai Dhan, had 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 the Division Bench observed that the allowance of any salary, commission or remuneration paid by the firm to either Sri Mai Dhan Gupta or other members of the Board of Management in contravention of the provisions of Section 10(4)(b) was not justified and that the bar imposed by Section 10(4)(b) was 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 inconsequential. The Division Bench was, therefore, of the view that the Tribunal was not justified in allowing deduction in respect of the amounts in question for the assessment years 1955–56 and 1956–57 in the computation of the profits of the firm. The reasoning of the Division Bench was obviously based on the assumption that Members of the Board of Management received the payment of salary and remuneration from the firm as partners of the firm. The basic point for consideration, therefore, would be as to whether the payment of remuneration and allowances to the members of the Board of Management, who were also partners of the assessee firm, was made to and received by them in the capacity of partners of the assessee firm.
21. For the purposes of Income-tax Act as well, the words ‘firm’, ‘partner’ and ‘partnership’ have the same meanings respectively as in the Indian Partnership Act of 1932., Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’ and the name under which their business is carried on is called the ‘firm name’. Thus a firm is nothing but a compendious expression of the relationship between the partners who constitute it The business carried on by a firm is the business carried on by the partners. The profits of the firm are profits earned by all the partners in carrying on the business and the share of the partner is the business income in his hands for the purpose of Section 10(1) of the Indian Income-tax Act, 1922. A partner, however in a partnership cannot be an employee of that partnership and any salary received by a partner from the firm is but a part of his share of profits. Hence even if the partners stipulate that one or more of them may draw salary from the firm it is payment in reality and in the eye of law would be a mode of division of part of the firm's profits.
22. If a firm derives business income such income shall have to be computed after making the allowance permissible under S. 10(2) but subject to Section 10(4) and in view of clause (b) of sub-section (4) of the section any salary, commission or remuneration paid by a firm to any of the partners would not be entitled to deduction in the computation of firm's income. The income of a partner of a firm is computed in accordance with the procedure provided in Section 16(1)(b) of the Act. The total income of a partner of a firm is his share of the profit or loss of the firm and such share shall be taken to be the salary received by him as well as his share of the income in the balance of the profit after deduction of the salary paid to him. Reading the provisions of Section 16(1)(b) along with those of Section 10(4)(b) it is quite clear that salary paid by a firm to a partner is in principle but a part of his share of the profits of the firm. The total income of the firm as computed with reference to Section 10(4)(b) would, therefore, include the salary paid to the partner by the firm. This is quite consistent with the principle that a partner cannot also be an employee of the partnership inasmuch as a man cannot be his own employer. An agreement stipulating that a partner shall receive a salary would merely regulate the mode in which the accounts are taken for the purposes of ascertaining the income of the firm and the division of profits between the partners. The salary paid by the firm to a partner in his capacity as a partner would, therefore, not be regarded as emanating from a source different from one from which he derives the share of profit. In other words the salary of a partner and his share of the income do not emanate from two different sources and hence the salary paid by the firm to a partner would be covered by Section 10(4)(b) of the Act. From this it necessarily follows that if the remuneration was paid to a person not in his capacity as a partner but either as a Receiver appointed by the Court or as Authorised Controller appointed by the Central Government under the provisions of Essential Supplies (Temporary Powers) Act the same would be emanating from a different source. The source of the right in which the Authorised Controller would receive the remuneration is not a right to receive any sum from the firm as a partner but would rest in the order of the Central Government fixing the remuneration for management of the undertaking by the Authorised Controller. The amount received by him as remuneration is not received by him as a partner as a part of his share of his profits but it springs from a different source, namely, the order of the Central Government.
23. It is true that every partner has a right to take part in the conduct of the business of the firm and is bound to attend diligently to his duties in the conduct of the business but subject to contract between the partners, a partner is not entitled to receive remuneration for taking part in the conduct of the business. He is an agent of the firm for the performance of the business of the firm and his act which is done to carry on in the usual way, business of the kind carried on by the firm, binds the firm. Every partner is liable jointly and severally for all the acts done for and on behalf of the firm while he is a partner. He thus acts as a principal and also as an agent of his other partners. There is however, no provision in law that a person, who is partner in a firm, cannot be appointed as a receiver by the Court or Authorised Controller or member of the Board of Management by the Central Government in respect of the property or business of that firm. While remaining a partner in the firm he may be appointed by the Court as a receiver of the property or business of the firm or may be appointed Authorised Controller or member of the Board of Management of the undertaking by the Central Government under the provisions of the Essential Supplies (Temporary Powers) Act, 1946.
24. But while acting as a receiver or Authorised Controller or as a member of the Board of Management his position, responsibility and liabilities would be different and distinct. As a receiver he would be answer-able to the Court appointing him vide Rr. 3 and 4 of O. 41 of the CPC. Similarly as an Authorised Controller he would be answerable to the Central Government under sub-section (iv)(a) of Section 3 of the Essential Supplies (Temporary Powers) Act. A Court can appoint any person including a partner of the firm as a receiver under the provisions of Rule 1 of Order 40 of the CPC In that event he would be liable to submit his accounts at such periods and in such form as the Court directs and to explain his conduct to the Court and not to his other partners. He would also be entitled to receive such remuneration as might be determined by the Court under Rule 2 of Order 40 of the CPC for the services rendered by him as a receiver. He may also be removed from the office of the receiver by the Court but on such removal he would not be deemed to have been removed as a partner of the firm. He would continue to be a partner unless he retires or is adjudicated an insolvent or dies or is expelled in accordance with the provisions of Section 33 of the Indian Partnership Act. Similarly a person may be a partner in a firm and may yet be appointed as an Authorised Controller by the Central Government under Section 3 read with Section 4 of the Essential Supplies (Temporary Powers) Act. His acts of commission or omission while acting as an Authorised Controller or as a member of the Board of Management would, however, not bind his other partners because in that capacity he does not act at their agent.
25. Under Section 3 of the Essential Supplies (Temporary Powers) Act the Central Government so far as it appears to it to be necessary for maintaining or increasing the production and supply of an essential commodity, may by order authorise any person to exercise, with respect to the whole or any part of any such undertaking such functions of control as may be provided by the order and so long as that order is in force the Authorised Controller would exercise his functions in accordance with any instructions given to him by the Central Government and would be paid such remuneration as might be determined by the Central Government in that behalf. He would receive this remuneration as an Authorised Controller and not as a partner. This would, therefore, not be a remuneration paid by the ‘firm’ to a ‘partner’ thereof but would be a remuneration paid to the ‘Authorised Controller’ or a member of the Board of Management duly appointed under the provisions of Section 3 of the Essential Supplies (Temporary Powers) Act.
26. That being so, the bar imposed by Section 10(4)(b) would not be applicable. In the instant case the persons concerned were appointed as Authorised Controllers and later as members of the Board of Management under the provisions of Section 3 of the Essential Supplies (Temporary Powers) Act by the Central Government The remuneration paid to them in that capacity shall therefore, not be construed to be a payment made by the firm to the “partners of the firm.” The appointment of these persons as members of the Board of Management was accepted by them on the terms not dependent on the provisions of the partnership deed and therefore not in the capacity of the partners of the firm. It was an appointment of an independent nature governed by the provisions of the Essential Supplies (Temporary Powers) Act and the conditions laid down by the Central Government in that behalf. I am, therefore, of the view that the payments in question were not covered by the provisions of Section 10(4)(b) of the Income-tax Act, 1922 and the same could be deducted while computing the total taxable income of the assessee firm.
27. I would, therefore, answer the question in the affirmative and in favour of the assessee.
BY THE COURT
28. Our answer to the question referred by the Delhi Bench of the Income-tax Appellate Tribunal is in the affirmative in favour of the assessee and against the Department namely that the sums aggregating to Rs. 28,422/- claimed as payments made to partners for performing certain functions under the Essential Supplies (Temporary Powers) Act were not inadmissible under Section 10(4)(b) of the Income-tax Act, 1922. The assessee will get costs of Rs. 200/-.
29. Reference answered in affirmative.