JUDGMENT C. S. P. Singh, J. - The Income Tax Appellate Tribunal (Delhi Bench B) has referred the following questions for our opinion :-
"(1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amounts of Rs. 6,033/- and Rs. 7,200/- being remuneration and house rent paid to the director were permissible deductions in computing the assessees income from the firm in which the assessee company was a partner for the assessment years 1964-65 and 1965-66 respectively ?
(2) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee company derives income from manufacturing or processing of goods and that the rate of income tax applicable would be 50%."
2. At the outset, counsel for the Department conceded that the second question was concluded against the Department by the decision in Commissioner of Income Tax vs. M/s. Globe Engineers Private Ltd., Meerut reported in 1972 U.P. Tax Cases 296.
3. We till not state such facts as are necessary for answering the first question.
4. The assessee had entered into a partnership in a concern styled as Messrs Hill Hardware Co., 72 Janpath, New Delhi. It had 50 per cent share in that firm. For the assessment year 1964-65, the Income Tax Officer computed the total income of the assessee company at Rs. 1,05,589. In making this computation, he disallowed an amount of Rs. 3,633/- remuneration paid to Sri Vishwanath Mehra, who was working as assessees Manager from 28-3-1946 and an amount of Rs. 2,400/- house rent paid to him during this period. In the assessment year 1965-66, the assessable income was computed at Rs. 1,36,401, after disallowing an amount of Rs. 4,800/- claimed as remuneration paid to Sri Mehra and an amount of Rs. 2,400/- as house rent paid to him. The assessee filed an appeal before the Appellate Assistant Commissioner, which was allowed following an earlier decision of the Tribunal. A second appeal by the Department also failed.
5. In order to answer the question, the nature of the business activities of the company may now be set out in a little greater detail. The Appellate Assistant Commissioner has quoted an earlier order of the Tribunal with which the Tribunal appears to have agreed. From these extracts it transpires that the business of the assessee company was not merely to manufacture certain types of furniture but to exploit its machinery for the purpose of manufacturing generally or for any other use to which the plant and machinery could be put to. The assessee company instead of manufacturing furniture for the purpose of cinema house switched on to the manufacturing of padlocks. For this purpose it had allowed its machinery to be exploited by the newly set up firm which consisted of itself and another company. The Tribunal had found that the Company had not stopped its enter business, i.e. of exploiting its assets, otherwise viz. plant and machinery. On these considerations the amounts paid to Sri Mehra had been allowed in their earlier years. The position in the present assessment years with reference is concerned does not appear to be different. Thus Sri Deoki Nadan, counsel for the Departments not right in his contention that the amounts paid to Mehra by the company were paid solely for looking after the business of the Company in the partnership firm.
6. Our attention from the main issue was tried to be distracted by reference to Section 67 of the Act. It was urged that as Mehra was already being paid a salary by the firm amounting to Rs. 1,500/- per month and an entertainment allowance of Rs. 125/- per month, the present payments could not be allowed. We are unable to appreciate this contention. Reliance on Section 67 is not well founded, for before the Section can be resorted to, the payments in question should has been made to the partners of the firm. In the present case, Mehra was not a partner of the firm. It was the company which had formed the partnership. Payments made to Mehra as an employee of the company cannot, in law be treated to be payments made to the partner company. A company is a distinct juristic entity, separate from its shareholders as also from its other directors and the mere fact that it has to act through a human agency, viz. its directors or its employees does not result in the coalescing of the individuality of the company, with that of its directors or its employees.
7. Reliance on the decision of the Supreme Court in the case of Jitmal Bhuramal vs. Commissioner of Income Tax, Bihar and Orissa (44 ITR 887) also appears to be out of context. That was a case relating to Hindu undivided family. In that case it was held that the remuneration which had been paid to the junior members of the Hindu undivided family was not allowable in the assessment of the Hindu undivided family, as the services which they had rendered was to a firm which was separate and distinct from Hindu undivide family. In the present case the Tribunal has found that the amounts in question were paid to Mehra for services rendered in connection with the business of the company.
8. We, accordingly, answer the two questions in the affirmative against the Department and in favour of the assessee. The assessee is entitled to its costs, which is assessed at Rs. 200/-. Counsel fee assessed at the same figure.