The genuineness of an increase in salary paid to partners of a firm is a crucial factor in determining whether the increase is assessable in the hands of the HUF or the individual partners.

R. JAYASIMHA BABU, J.

The question revised is common in all these tax cases, though the petitioners are different. The question that has been referred to us by the Tribunal is,

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the increase in the salary by Rs. 15, 000 received from the firm M/s. RM. Appavu Chettiar Sons, Madurai, by the respective Karthas for their individual services rendered to the said firm, was assessable in the hands of the assessee HUF?"

2. The admitted facts, as set out in the statement of the case are : The assessees are six HUFs whose Kartas are partners in a firm M/s. RM. Appavoo Chettiar & Sons, Madurai. The firm paid remuneration to the Kartas as there was provision for such payment being made in the partnership deed. There was one other partner in the firm who was not paid any remuneration. Upto the asst. yr. 1980-81 the salary paid to them was at the rate of Rs. 9, 000 per year. That was increased to Rs. 24, 000 per year from the asst. yr. 1981-82 by a supplementary deed executed by the parties. The payment of salary at the rate of Rs. 9, 000 per year for the year prior to 1981-82 had been the subject-matter of appeal before the Tribunal and it was held by the Tribunal that the said payment was not rut by s. 40(b of the IT Act as the payment was for services rendered by the partners who possessed special skill and knowledge and the partnership deed permitted the payment of such salary.

3. For the asst. yr. 1981-82, the payment of salary at the rate of Rs. 24, 000 per year was regarded by the AO as merely a devise to distribute the profits of the firm to the HUFs and, therefore, he disallowed the entire amount. On appeal, it was held that the payment of salary in excess of Rs. 9, 000 per annum was unreasonable. The Appellate Authority also observed that the execution of the supplementary deed was only to divert the income from the HUF in the form of salary paid to the Kartas of HUF. On further appeal at the instance of the assessee, the Tribunal after setting out the history of the case confined its discussion to the reasonableness of the figures of the salary in para 6 of its order. The Tribunal observed as, under

"But, there has been a substantial increase in the remuneration in the year 1981-82 and no particular evidence has been produced to show that there has been a qualitative or quantitative enhancement in the service rendered by the Kartas to the firm as compared to the earlier years. It is true that the turnover has increased considerably since the first year in which the remuneration has been given by the firm to the Kartas at Rs. 9, 000 but it cannot be said that such increase in the turnover justified the increase in the remuneration paid to the Kartas."

4. In the order of assessment, the increase in the turnover that has been set out from the year 1975-76 to 1981-82 the turnover was Rs. 3.9 lakhs in 1975-76 much less than that figure in the year 1976-77 to 1978-79. It increased to Rs. 10.5 lakhs in 1979-80 and was Rs. 14.8 lakhs in the years 1980-81 and 1981-82.

5. The Tribunal has not referred to these figures. It however, has noticed that the remuneration at Rs. 9, 000 p.a. was fixed in the initial year and apparently there had been no increase in the salary for about seven years.

6. Learned senior counsel for the assessee contended that the Tribunal has erred in holding that the increase in salary was unreasonable. He has also pointed out that there was no finding in the order of the Tribunal that the amount so paid was in reality distribution of the profits of the firm and had not been paid out as salary. Counsel submitted that for the amount paid out as salary, it is for the authorities to set in any judgment or reasonableness thereof, unless there is a finding that what was paid as salary was in fact, a part of the profit scheme of distribution of and was sought to be diverted by labelling it as salary.

7. The questi