JUDGMENT K.S. Puttaswamy, J.—In these references made under section 256 of the Income Tax Act of 1961 (Central Act 43 of 1961) ("the Act"), the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore ("Tribunal"), at the instance of the Revenue, has referred the following questions of law for two assessment years of the assessee for the opinion of this court; "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,79,742 could not be disallowed under section 40(c) of the Income Tax Act, 1961 ? (vide I.T.R.C. No. 27 of 1979)" "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,73,526 could not be disallowed under section 40(c) of the Income Tax Act, 1961 ? (vide I.T.R.C. No. 28 of 1979)" 2. An examination of these questions reveals that they are really one and the same and the only difference in them is in the amounts claimed as deduction. We need hardly say that the same does not make any difference to deal with them together. But, in order to appreciate the questions referred to us, it is necessary to notice the facts that are found by the Tribunal which are not also in dispute. 3. Prior to July 15, 1972, a partnership firm called K. M. Ananda Prabhu and Sons, Mangalore ("the firm"), consisting of three partners, namely, R. M. Vishnudas Prabhu, K. M. Ramdas Prabhu and K. M. Shankar Prabhu, was, inter alia, engaged in the business of manufacturing and sale of beedies under the brand name "Mangalore Prakash Beedies". 4. On May 20, 1972, a private limited company called "Prakash Beedies Limited" ("the company"), which is the assessee before us, with its registered office at Mangalore was incorporated under the Companies Act, 1956 (Central Act 1 of 1956), inter alia, with the object of taking over the business of the firm. Under an agreement dated July 18, 1972, between the firm and the company (annexure B), the former sold its rights and assets to the latter on the terms and conditions set out therein. Under an agreement dated July 18, 1972, between the firm and the company (annexure B), the former sold its rights and assets to the latter on the terms and conditions set out therein. Clause 4(a) of the said agreement which is material and has given rise to these references reads thus : "(a) For the use of the trade name, the company shall pay royalty to the vendor at the rate of 10 ps. for every thousand beedies sold by the company by using the trade name of the vendor. The royalty shall be worked out at the end of each quarter ending on March, June, September and December on the sales made during each quarter. The royalty fixed hereby shall not be varied for a period of one year and may be reviewed and/or revised there afterwards from time to time". 5. In terms of this clause, the assessee had made payments of royalty to the firm from time to time. 6. The three partners of the firm were also the three directors of the company. 7. For the assessment years 1974-75 and 1975-76, relevant to the accounting years ending on March 31, 1974, and March 31, 1975, respectively, the assessee filed its returns under the Act, before the First Income Tax Officer, Mangalore, disclosing the payment of sums of Rs. 3,16,526 and Rs. 3,95,742 to the firm towards royalty in terms of clause 4(a) of the agreement claiming the whole of the said payments as an admissible deduction under the Act. On November 2, 1974, and February 24, 1976 (annexure C), the Income Tax Officer completed the assessments and allowed the said sums as permissible deductions under the Act. 8. In exercise of the suo motu powers of revision conferred on him by section 263 of the Act, the Commissioner of Income Tax (Karnataka I), Bangalore ("the Commissioner"), initiated proceedings to revise the aforesaid assessment orders of the Income Tax Officer to the extent they allowed payments to the firm over and above the ceiling limit prescribed in section 40(c) of the Act. On complying with the requirements of that section, the Commissioner made a common order on September 16, 1976 (annexure D), confirming his show-cause notices. Aggrieved by the said order of the Commissioner, the assessee filed appeals in I.T.A. Nos. On complying with the requirements of that section, the Commissioner made a common order on September 16, 1976 (annexure D), confirming his show-cause notices. Aggrieved by the said order of the Commissioner, the assessee filed appeals in I.T.A. Nos. 686 and 687 of 1976-77 before the Tribunal which by its common order dated February 22, 1978 (annexure E), allowed them and restored the order of the Income Tax Officer. Hence, these references. 9. Sri K. Srinivasan, learned senior standing counsel for the Income Tax Department assisted by Sri H. Raghavendra Rao, junior standing counsel, has appeared for the Revenue. Sri S. P. Bhat, learned advocate, has appeared for the assessee. Both sides in their full and able arguments have relied on certain rulings and we will refer to them at the appropriate stages. 10. Sri Srinivasan has urged that the payments made by the assessee were for the benefit of the directors to which section 40(c) of the Act applied as in law there was no distinction and difference between a firm and a partner. 11. Sri Bhat has urged that the payments made were to a "firm", a separate, distinct and taxable entity under the Act and not to the directors and, therefore, section 40(c) of the Act, much less the ceiling limit stipulated therein, had no application. 12. While the Income Tax Officer did not give reasons for allowing the deductions, the Commissioner examined the same in some detail and earnestness and, inter alia, expressed thus : "The assessee's argument in para. 8 is that the royalty was not paid to the directors but was paid to a firm. The assessee has overlooked the phrase 'directly or indirectly' occurring in section 40(c). The payment to a firm where all the three directors are the only three partners is to be treated as provision of an indirect benefit to the three directors... It is to be clarified that no such equation is made, but expenditure on provision of remuneration, benefit or amenity, to the directors, directly or indirectly, is being considered; the overall limit of such expenditure, whether it be for providing remuneration or for providing benefit or amenity, is Rs. 72,000 per annum per director. Hence, the assessee is entitled to a maximum of Rs. 2,16,000 as expenditure in respect of the three directors....... 72,000 per annum per director. Hence, the assessee is entitled to a maximum of Rs. 2,16,000 as expenditure in respect of the three directors....... Hence, it is an indirect benefit, if not a direct benefit to the three directors. The case, therefore, attracts the provisions of section 40(c) of the I.T. Act, 1961, and in particular section 40(c)(A) which lays down the overall limit of Rs. 72,000 per annum per director. In the result, the assessee's arguments stand overruled. I direct the First Income Tax Officer, Mangalore, to recompute the total income of the company for the assessment years 1974-75 and 1975-76, by applying section 40(c)(A) on the lines indicated in para. 2 above, thereby adding Rs. 1,00,526 and Rs. 1,79,742, respectively, to the business income of the company." 13. But the Tribunal disagreeing with the reasons and the conclusions drawn by the Commissioner, inter alia, expressed thus : "In this case, there is no payment of royalty to any of the three directors but to a separate entity under the Income Tax Act, viz., the firm of K. M. Ananda Prabhu and Sons. As was rightly pointed out by the learned authorised representative of the assessee, even if the partners of that firm ceased to be directors of the assesses company, the royalty would nevertheless be payable to the firm by the assesses company. It is, therefore, clear that the payment is not to the directors as such at all....... Further, for the purpose of the Income Tax Act, a firm is a separate assessable entity and it is to that firm that the payment of royalty has to be made under the terms of the agreement between the assessee and the firm....... We are clearly of the opinion that the Commissioner of Income Tax was in error in holding that royalty paid by the assesses company to the firm of K. M. Ananda Prabhu and Sons should be considered for the purpose of fixing the limit of allowance for the purpose of section 40(c) of the Income Tax Act, 1961. We, therefore, set aside the order of the Commissioner for both the years and restore the assessment orders of the Income Tax Officer." 14. We, therefore, set aside the order of the Commissioner for both the years and restore the assessment orders of the Income Tax Officer." 14. Before us, both sides sought to sustain their respective cases on a slightly different ground which, we have noticed earlier, does not appear to be concluded by a direct ruling of the Supreme Court or this court. We must, therefore, examine the question from general principles and the case law built around the same. 15. The Partnership Act of 1932 (Central Act IX of 1932) ("the 1932 Act"), which was the earlier part of the Contract Act of 1872 has codified the law of partnership in the country. Section 4 of the 1932 Act defines "partnership" as 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. The 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". The other provisions regulating the formation of partnership, rights and obligations of partners and dissolution of partnership firms are not necessary to dilate. 16. In more than one case, the Supreme Court had occasion to examine the status of a firm and its partners. In Malabar Fisheries Co. Vs. Commissioner of Income Tax, Kerala, AIR 1980 SC 176 , the Supreme Court, reviewing the law in England, Scotland and India on the status of a firm and its partners under the 1932 Act, expressed thus (at pp. 58 and 59) : "The position as regards the nature of a firm and its property in Indian law under the Indian Partnership Act, 1932, is almost the same as in English law. Here also a partnership firm is not a distinct legal entity and the partnership property in law belongs to all the partners constituting the firm. In Bhagwanji Morarji Goculdas v. Alembic Chemical Works Company Limited the Privy Council in para. 10 of the judgment observed thus (see also [1948] 18 Comp Cas 209) : 'Before the Board it was argued that under the Indian Partnership Act, 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. 10 of the judgment observed thus (see also [1948] 18 Comp Cas 209) : 'Before the Board it was argued that under the Indian Partnership Act, 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. It is true that the Indian Partnership Act goes further than the English Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it, the law in India in that respect being more in accordance with the law of Scotland than with that of England. But the fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as the business of the firm continues. The Indian Act, like the English Act, avoids making a firm a corporate body enjoying the rights of perpetual succession.'" 17. After referring to the cases and in particular to Addanki Narayanappa and Another Vs. Bhaskara Krishtappa and 13 Ors., AIR 1966 SC 1300 , the court again observed thus 120 ITR 59 : "Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets, all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accept the contention that upon dissolution, the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the Act. In our view, therefore, there is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution." 18. In every one of the earlier or later cases, the Supreme Court has reiterated the above exposition and, therefore, it is unnecessary to refer to all of them. 19. What emerges from the above exposition is that a partnership firm is not a juristic or legal entity and there is really no distinction and difference between the partners and the firm, which is only a collection or association of individuals, for carrying on a business. This then is the general law of partnership in the country. 20. The Act, its predecessor Act and the sales tax laws of the country recognise a partnership firm as a separate and distinct "assessable entity" (viz., section 2(31) of the Act). Chapter XVI of the Act makes special provisions for registration of firms for purposes of the Act, the continuance of such registration and assessment of such registered firms. Section 182 of the Act expressly provides for assessing the registered firm and then the share income of the partners from such firm along with their other income. But these or other provisions do not declare that payment by a company to a "firm" which has no legal personality of its own shall be treated as payment to such firm and the prohibitions contained in section 40(c) of the Act shall not operate against the same. 21. An assessable entity under the Act is not a juristic or legal entity in law. A juristic or legal entity in law is always an assessable entity under the Act, though the converse is not true. 22. Section 40(c) of the Act read by itself or in conjunction with all other provisions of the Act do not recognise the payments made by a company to a firm as a distinct and separate payments made to the firm. We need hardly say that for the purposes of the Act, it was open to the Legislature to do so. Section 40(c) of the Act read by itself or in conjunction with all other provisions of the Act do not recognise the payments made by a company to a firm as a distinct and separate payments made to the firm. We need hardly say that for the purposes of the Act, it was open to the Legislature to do so. But, when the Act in its wisdom does not make a departure from the general law of the country, then the one and the only inference to be drawn is that the Act does not propose to alter the general law of partnership at all and that law should be enforced to the extent the same is not in derogation of the special provisions made in the Act. If this is the true position in law, as we apprehend that to be, then it follows that payments made by a company to a firm whose partners are also its directors must only be held to be payments made to the directors of the company itself. We are of the view that this inevitable conclusion cannot be avoided on any ground at all. 23. When once we hold that on general principles, the payments made by the assesses company were payments to its directors, it follows from the same that section 40(c) of the Act and the ceiling stipulated therein automatically operates. 24. In State of Punjab Vs. Jullunder Vegetables Syndicate, AIR 1966 SC 1295 , Commissioner of Income Tax, West Bengal Vs. A.W. Figgies and Co. and Others, AIR 1953 SC 455 ; Dulichand Lakshminarayan Vs. The Commissioner of Income Tax, Nagpur, AIR 1956 SC 354 ; Bhai Sundar Dass and Sons Vs. The Commissioner of Income Tax, New Delhi, ILR (1971) Delhi 734 ; A.S. Krishna Setty and Sons Vs. Additional Commissioner of Income Tax, Mysore, ILR (1975) KAR 956 Commissioner of Wealth-Tax, Karnataka-I Vs. Christine Cardoza, (1978) 114 ITR 532 KAR T.T. Pvt. Ltd. Vs. Income-tax Officer, Company Circle-III, Bangalore, (1980) 121 ITR 551 KAR and Pearl Woollen Mills Vs. Commissioner of Income Tax, (1980) 123 ITR 658 P&H, relied on by Sri Bhat, the precise question did not directly arise for consideration and, therefore, the ratio in those cases does not really bear on the point. 25. Income-tax Officer, Company Circle-III, Bangalore, (1980) 121 ITR 551 KAR and Pearl Woollen Mills Vs. Commissioner of Income Tax, (1980) 123 ITR 658 P&H, relied on by Sri Bhat, the precise question did not directly arise for consideration and, therefore, the ratio in those cases does not really bear on the point. 25. On the foregoing, it follows that we cannot but hold that the payments made by the assessee attracts the application of section 40(c) of the Act and the view expressed by the Tribunal to the contrary is not sound. 26. We have carefully read the orders of the Tribunal and the Commissioner. Even otherwise, we are of the view that the views expressed and the conclusions drawn by the Commissioner are correct than the view expressed and the conclusions drawn by the Tribunal on the question. 27. In the light of our above discussion, we answer the questions referred to us in the negative, in favour of the Revenue and against the assessee. But, in the circumstances of the cases, we direct the parties to bear their own costs.