TMI Blog2001 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the salary of Rs.18,000 and interest of Rs.890 paid to the husband of the assessee by the firm in which she is a partner was not includible in her hands under section 64(1)(i) of the Income-tax Act, 1961?" The facts stated are that the assessee's husband, Shri N.K. Marfafia, resigned from the Defence Department and joined as an employee in the firm, New Majestic Talkies, in which the assessee, Smt. Gulnar, the respondent was a partner, on a salary of Rs.1,000. Later on, the said N.K. Marfafia was inducted as a partner and the amount of salary was increased to Rs.1,500. Salary was to be paid in addition to his share in the profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, New Majestic Talkies, in which the assessee was a partner on the salary of Rs.1,000. Later on, he became a partner of the said firm after the death of one of the partners on May 25, 1973, when a fresh partnership deed was executed with effect from May 25, 1973, and his salary was enhanced from Rs.1,000 to Rs.1,500 per month. This was in addition to the share of the profits of the firm. Since the husband was an employee of the firm before he became a partner in the firm, he continued to receive salary, though enhanced, which arose out of an individual agreement of engaging the services of her husband for his technical know-how and not as a result of his membership of the firm. The theory of existence of an individual contract of employmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, payment of salary cannot be attributed to the membership of the firm. There is no connection between the payment of the salary and Shri Marfatia being a member of the firm. It cannot be said that if Shri Marfatia was not the partner of the firm, then he would not have received the salary. Shri Marfatia would have continued to receive salary irrespective of the fact whether he was taken in as a partner in the firm or not." On reaching this conclusion, the learned Tribunal refused to consider the reason given by the Appellate Assistant Commissioner that a partner cannot be an employee of the firm at the same time by saying that the question whether or not a partner can be a servant of the firm is not a relevant question for conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding salary per month may only indicate that whether there are profits or not, the person, who is a partner of the firm, shall receive minimum amount. In the alternative, it is contended that if the salary paid to the spouse of the assessee cannot be treated as income directly and indirectly arising to him on account of membership of the firm, he having been paid salary by the firm in which the assessee was a partner it was still liable to be added to the income of the spouse under section 64(1)(ii) of the Income-tax Act. Mr. Ranka, learned counsel for the assessee, has urged that an artificial mode of computation of a person's share from the partnership firm under section 67, cannot be imported in inviting the application of section 64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .m. This amount of Rs.1,500, he was not receiving under any separate individual contract. Once Mr. N.K. Marfatia, the husband of the assessee decided to enter into a partnership agreement with the assessee along with others or alone, the question of continued status as an employee of the firm would not arise unless otherwise proved particularly when under the deed of partnership it was envisaged that one of the partners would be paid salary in addition to the share in the business of the firm. It may be pertinent to notice from the terms of clause 4 of the deed of partnership referred to above that no mention was made of an existing contract of employment with the husband of the assessee for enhancing the salary payable to the spouse of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instance under sub-section (1)(a) of section 67 for computing the allocable share in a profit or loss from the total income of the firm any interest, salary commission or other remuneration paid to a partner shall be deducted and the balance so ascertained shall be apportioned among the partners. Under clause (b) if the "allocated result" in clause (a) is a profit, to that sum any interest, salary, commission or other remuneration paid to each partner, if any, shall be added to such apportioned balance under clause (a). The aggregate of the allocated balance and addition made under clauses (a) and (b) is to be treated as the partner's share in the income of the firm. Likewise, where the share apportioned under clause (a) is loss, any salar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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