dispute in this appeal is with regard to addition of Rs. 1,10,000 being disallowance made under section 40(b) of Income-tax Act, 1961 ('the Act') but deleted by Commissioner (Appeals). 2. Shri N. T. Rama Rao was managing partner and Shri N. Balakrishna was partner in firm, namely, Ramakrishna Cine Studios. firm produced t w o Telugu feature films titled 'Sreeramapattabhishekam' and 'Srimat Virataparvam'. In both pictures, Shri N. T. Rama Rao acted as hero. firm paid Rs. 1,00,000 (Rs. 50,000 + Rs. 50,000) to Shri N. T. Rama Rao for acting in above two pictures and said amount was debited to 'production accounts' of aforesaid two films. firm also paid Rs. 10,000 to Shri N. Balakrishna who acted in picture 'Sreeramapattabhishekam'. assessee claimed that payments of Rs. 1,00,000 and Rs. 10,000 were made to Shri N. T. Rama Rao and Shri Balakrishna as cine artists for acting in pictures produced by firm and no disallowance under section 40(b) can be made. ITO did not accept this submission. He held that in whatever capacity payment is made by firm to partner such payment has to be disallowed under section 40(b). Accordingly disallowed Rs. 1,10,000. On appeal, Commissioner (Appeals) found that identical issue was considered by Tribunal in case of Tarakarama Film Unit where such disallowance made under section 40(b) was deleted. Following above order of Tribunal which is on identical facts, he held that payment of Rs. 1,10,000 made to two partners in their professional capacity as film stars for acting in films produced by assessee-firm cannot be considered for disallowance under section 40(b). Thus be deleted Rs. 1,10,000. Against same revenue has preferred this appeal. 3. learned departmental representative submitted that once payment i s made to partner provisions of section 40(b) would be applicable. Hence, disallowance made by ITO was justified and Commissioner (Appeals) was wrong in deleting addition of Rs. 1,10,000. learned counsel for assessee kly urged that payments were made to Shri N. T. Rama Rao and Shri. N. Balakrishna in capacity of cine artists for having acted in films produced by assessee-firm and such payments are not hit by provisions of section 40(b) as it is not any remuneration paid for services rendered to firm. He placed reliance on order of Tribunal in case of Tarakarama Film Unit v. ITO [1984] 9 ITD 543 (Hyd.). 4. We have considered rival submissions. Shri. N. T. Rama Rao and Shri N. Balakrishna as cine artists acted in films produced by assessee- firm for which firm paid Rs. 1,00,000 to Shri N. T. Rama Rao and Rs. 10,000 to Shri N. Balakrishna. payments made to them were for acting in films produced by firm. It was not payment made to them for any services rendered as partners but it was payment made to them as artists for acting in films produced by firm. Such payments made to partners in their capacity as artists for acting in films produced by firm are not hit by section 40(b). 5. In CIT v. Gemini Productions [1977] 110 ITR 847 (Mad.), assessee, firm, was constituted for business of production and distribution of cinema films. Gemini Pictures Circuit (P.) Ltd. was partner in said firm having 9/15th share. assessee-company entrusted distribution part to Gemini Pictures Circuit (P.) Ltd., one of partners which was carrying on business as film distributors. assessee paid commission to Gemini Pictures Circuit (P.) Ltd. as per agreement entered with it for distribution of films which was entrusted to it. ITO disallowed said commission under section 10(4) (b) of Indian Income-tax Act, 1922 which is corresponding provision of section 40(b) of 1961 Act. On appeal, AAC deleted Madras High Court upheld deletion of disallowance of payment of commission under section 10(4) (b ). It was held as under: "... We are clearly of opinion that said amount cannot be said to fall within scope of section 10(4) (b) of Act. Before application of section 10(4) (b), two requirements must be satisfied. One is, income must be income of firm. second is, out of said income payment must be made to partner. very object of total bar of payment of interest of salary or commission or remuneration to partner under section 10(4) (b) of Act with reference to computation of income of firm is to prevent diversion of profits of firm to hands of its partners. Therefore, it must first be established that payment was made by firm to its partner out of income of firm. Hence, we shall first consider question whether there income of firm. Hence, we shall first consider question whether there was any income of assessee-firm out of which commission was paid to Gemini Pictures Circuit Private Ltd., Madras." (. 851) It was further observed as under: ".... Consequently, very first requirement, namely, that amount out of which commission is paid must be income of firm of which recipient is partner is absent in present case. If so, there is no scope for applying section 10(4) (b) of Indian Income-tax Act, 1922." (P. 852) In Harihar Cotton Pressing Factory v. CIT (1960) 39 ITR 594 (Bom.), assessee was firm which ran cotton pressing factory. Four of its five partners were co-operative societies. firm pressed cotton for four of its partners. It charged rates fixed by Cotton Dealers' Association for pressing but at end of year it allowed rebate on pressing charges. question arose whether rebate allowed was hit by provisions of section 10(4) (b) of 1922 Act which is analogous to section 40(b) of 1961 Act. On those facts, Bombay High Court held that amounts of rebate allowed to four partners were not covered by section 10(4) (b) and were admissible deduction in computing profits of firm. In Heastie v. Veitch & Co. (1934) 2 ITR 456 (CA), senior of two partners who carried on business as chartered accountant in premises owned by him received, in accordance with provisions of partnership deed, annual rent, which was claimed as deduction. On those facts Court of Appeal held that claim was justified and it was deductible. In that case it was pointed out by way of illustration that if one of partners who carries on wine business supplies wine to firm running hotel in which he is partner, it would be idle to suggest that for purpose of ascertaining profits of hotel he could not deduct sums paid to partner who supplied wine and deduction would be permissible. In CIT v. K. Krishnaiah Chetty & Sons (1981) 131 ITR 410 (AP), capital which stood credited to individual accounts of partners was transferred to accounts of their respective HUFs and interest paid thereon by partnership firm was also credited to accounts of respective HUFs. capital was not contributed by partners but was contributed by HUFs and consequently interest also was debited to them. On those facts question arose whether interest paid is disallowable under section 40(b). Andhra Pradesh High Court held that having regard to facts of that case section 40(b) has no application and interest payments made to HUFs could not be disallowed. 6. identical issue was considered by Tribunal, Hyderabad Bench 'B' i n Tarakarama Film Unit's case (supra). In that case also firm paid remuneration of Rs. 10,000 to Shri N. Balakrishna, one of partners, for acting in film produced by firm. question arose whether payment is hit by section 40(b). Tribunal held that remuneration of Rs. 10,000 paid to Shri N. Balakrishna for acting in films is not disallowable under section 40(b). 7. In our view ratio laid down in above cases would squarely apply to infant case. payments made by firm to two partners S/Shri N. T. Rama Rao and N. Balakrishna were not for any services rendered by them as partners but it was paid in their capacity as fine artists for acting in films produced by assessee as per agreement entered with them. Such payments are not hit by section 40(b). Thus, Commissioner (Appeals) was justified in deleting disallowance of Rs. 1,10,000. Thus, we uphold his order. 8. In result, appeal is dismissed. *** INCOME TAX OFFICER v. RAMAKRISHNA CINE STUDIOS