TMI Blog1991 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered to the firm is liable to be assessed by invoking section 64 of the Income-tax Act, 1961 ?" The two assessees are the wives of two brothers, Chandrasekaran and Jayaraman, respectively. The joint family consisting of Jayaraman, Chandrasekaran and their father was carrying on the business of manufacture and sale of RCC pipes. Subsequently, there was a partition in the said family, whereunder the father and the two sons continued the business but as partners under the name and style "Messrs. Spun Pipe Co.". The father and the two sons were partners in the said firm in their capacities as the kartas of their respective joint families. On July 31, 1973, there was reconstitution of the aforesaid firm. The father left the firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs. 35,660 and Rs. 20,000 respectively. The Commissioner of Income-tax, Tamil Nadu 111, on a scrutiny of the records, was of the view that the salary paid to Jayaraman and Chandrasekaran was to be included in the assessments of the assessees herein under section 64(1)(i) of the Income-tax Act, 1961. Accordingly, he initiated action under section 263 of the Income-tax Act, 1961, and, after hearing the objections of the assessees, by his orders dated October 7, 1976, set aside the assessments and directed the Income-tax Officer to make fresh assessments by including the salary paid to Jayaraman and Chandrasekaran. Thereupon, the assessees preferred the above appeals to the Tribunal against the orders dated October 7, 1976. It was conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of remuneration or salary for making available to the business of the firm the special skill and experience of the partners, Chandrasekaran and Jayaraman, the husbands of the respective assessees, would really be in the nature of compensation for the services rendered ; such salary paid to the husbands of the assessees cannot be considered as income arising directly or indirectly from the membership of the assessees and the salary received by the husbands of the assessees for the services rendered is not liable to be included by invoking section 64(1) of the Act. In support of his contention, the assessees rely on the decision in CIT v. Shri Surendra Manilal Mehta [1985] 154 ITR 264 (Mad). We are quite unable to accept the contention of lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirectly from the membership of such spouse in the said firm. it is the well-settled position of law that when the karta of a Hindu undivided family enters into a partnership with others, he does so in his individual capacity and the karta alone becomes the partner but not the individual members of the family (vide CIT v. Kalu Babu Lal Chand [1959] 37 ITR 123 (SC), CIT v. Nandlal Ganda Lal [1960] 40 ITR 1 (SC) and Charandas Haridas v. CIT [1960] 39 ITR 202 (SC)). In the present case, though the funds invested by the partners, Chandrasekaran and Jayaraman, husbands of the assessees, respectively, as capital in the firm belonged to their respective joint families, when they became partners as kartas of their respective Hindu undivided fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and retains the same character of the income of the firm. The Supreme Court in the abovementioned decision further held as follows (p. 296) : "The anatomy of the provision is obvious, even if the explanation or motivation for it may be more than one. It is implicit that the share income of the partner takes in his salary. The telling test is that where a firm suffers loss the salaried partner's share in it goes to depress his share of income. Surely, therefore, salary is a different label for profits, in the context of a partner's remuneration ... Salaries are profits known by a different name and must be treated as such for taxation purposes..." In view of the above position of law as laid down by the Supreme Court, it has to be held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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