Judgment :- THANIKKACHALAM J. At the instance of the Department, the following question was referred to this court under section 256(1) of the Incometax Act, 1961, for our opinion "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the sum of Rs. 27, 323 being the total amount of the rebate allowed to the partners did not amount to commission and, therefore, cannot be disallowed under section 40(b) of the Income-tax Act, 1961, for the assessment year 1976-77 is sustainable in law ?" The assessee is a firm of eleven partners engaged in chit fund business. The assessee furnished return of income admitting the income of Rs. 1, 62, 142. While completing the assessment, the Income-tax Officer dis- allowed the chit commission paid to three of the partners totalling Rs. 27, 323, and accordingly, arrived at a total income of Rs. 1, 96, 070. According to the Income-tax Officer, the payment of commission made to the three partners was liable to be added back as the income of the firm under section 40(b) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and contended that the payment of chit dividend made to the three partners of the firm cannot be disallowed under section 40(b) of the Act. However, the Commissioner of Income-tax (Appeals) agreed with the view taken by the Income-tax Officer and dismissed the appeal. Aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Appellate Tribunal and the Appellate Tribunal held that the chit dividend paid to the three partners of the firm cannot be disallowed under section 40(b) of the Act. Aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Appellate Tribunal and the Appellate Tribunal held that the chit dividend paid to the three partners of the firm cannot be disallowed under section 40(b) of the Act. According to the Tribunal, in the chit conducted by the assessee-firm, the three partners were subscribers and they were paid chit dividend just like any other subscribers and that since this is not in the nature of interest, remuneration or commission, this cannot be added under section 40(b) of the ActLearned standing counsel appearing for the Department submitted that as per the provisions of section 40(b) of the Act, the commission paid by the firm to the partners will come under section 40(b) of the Act and, therefore, the Tribunal was not correct in holding that the provisions of section 40(b) of the Act would not be applicable to the facts of this case. According to learned standing counsel, the amount paid by the firm to the three partners, whether the payment is of interest, salary, bonus, commission, or remuneration, would come under the purview of section 40(b) of the Act. Learned standing counsel further submitted that inasmuch as the partners were paid commission by the partnership firm, the disallowance made by the assessing authorities is in order. According to standing counsel, the Tribunal was not correct in categorising the amounts paid by the assessee-firm to the three partners as dividend income and not as commission. On the other hand, learned counsel appearing for the assessee, while supporting the orders passed by the Tribunal, submitted that the assessee-firm paid dividend to the subscribers in the chit transactions. Therefore, the amounts paid by the firm to the three partners cannot be called commission paid by the firm to its partners. Inasmuch as the subscribers of the chit are entitled to get their share of dividend after the auction was conducted, it is not possible for the Department to apply the provisions of section 40(b) of the Act We have heard the rival submissions. The fact remains that the assessee is a partnership firm doing business in conducting chittrans actions. The three partners of the firm are subscribers in a chit transaction. After the auction was over, the firm paid the share of dividend to the subscribers who are the partners of the firm. The fact remains that the assessee is a partnership firm doing business in conducting chittrans actions. The three partners of the firm are subscribers in a chit transaction. After the auction was over, the firm paid the share of dividend to the subscribers who are the partners of the firm. It remains to be seen that the subscribers of the chit are entitled to get their share in the dividend income after the auction of the chit is over. Therefore, what was paid by the partnership-firm to the partners was not commission out of the income earned by the partnership firm. For conducting the chit, the partnership firm is entitled to take its commission. The amount paid by the firm to the three partners is not out of the commission earned by the firm. Even if the partnership-firm failed to pay the dividend amount to the subscribers, they are entitled to collect the dividend amount from the firm conducting the chit. Under such circumstances, the payment of amount in the present case by the partnership-firm to the partners cannot be called commission as stated under section 40(b) of the Act. Inasmuch as we consider that the amounts paid by the partnership firm to the partners were not in the nature of commission as contemplated under section 40(b) of the Act, no disallowance can be made by the authorities below by applying the provisions of section 40(b) of the Act. Since the amount paid by the partnership firm is the dividend income arising out of the chit transaction to its subscribers, the Tribunal was correct in holding that section 40(b) of the Act has no application to the facts arising in this case. Accordingly, we hold that there is no infirmity in the order passed by the Tribunal. Thus, we answer the question referred to us in the affirmative and against the Department. There will be no order as to costs. Counsel's fee Rs. 1, 000(Rupees one thousand only).