( 1 ) THIS reference arises under section 256 (1) of the Income-tax Act, 1961 ("the Act" for short ). The reference is made by the Income-tax Appellate Tribunal, at the instance of the Commissioner of Income-tax. The question referred for consideration of this court is :"whether, on the facts and in the circumstances of the case, the sum of Rs. 40,000 paid to two partners, Sri M. Venkataramana and Sri Laxminarayana, are allowable in view of section 40 (b) of the Income-tax Act, 196 ?"

( 2 ) A partnership firm consisting of three partners, M. Venkataramana, S. Laxminarayana alias Bapu and N. S. Murthy, was constituted under a deed of partnership dated 23/02/1969. It was agreed that the partnership firm shall carry on the business of production, distribution and exploitation of films, and also that of taking on lease territorial rights in films for dubbing and exploitation and any other business incidental thereto, in the name and style of "chitra KALPANA". The partnership deed is not marked among the documents forwarded by the Tribunal. For the purpose of disposing of the reference, we found it necessary to peruse the partnership deed and note the terms and conditions