TMI Blog1996 (1) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... salary by the firms in which he and his Hindu undivided family were associated ? " The assessee as the karta of the Hindu undivided family, was partner in two firms, viz., Pandian Cape Works, Sivakasi, and Star Match Industries, Sivakasi. He was paid salary of Rs. 8,000 and Rs. 9,600, respectively, by the abovesaid two firms for the services rendered for the accounting year ending February 5, 1976, relevant to the assessment year under consideration. In the individual assessment, the assessee claimed standard deduction under section 16 of the Income-tax Act, 1961, in respect of the above salary payments. The Income-tax Officer disallowed the claim on the ground that the salary paid was only a share of profits of the firms and that further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of service in the strict legal sense between a firm and one of its partners. Therefore, payment of salary to a partner represents a special share of profits. So also, salary paid to a partner retains the same character of the income of the firm. It was, therefore, submitted that the Tribunal was not correct in holding that the payments made by the abovesaid two firms to the assessee, who is a partner in the abovesaid two firms, can be considered as salary and hence, standard deduction under section 16 of the Act is not possible. We have heard learned standing counsel for the Department and perused the records carefully. We have set out the facts in detail. The point for consideration is whether the amounts paid by the abovesaid two firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the profits. Salary paid to a partner retains the same character of the income of the firm." Our High Court in Sivasankari Chandrasekaran and Brinda Jayaraman v. CIT [1991] 189 ITR 51, while considering the provisions of section 64(1)(i) of the Income-tax Act, 1961, in respect of answering a question whether in the assessment of Smt. Sivasankari Chandrasekaran and Brinda Jayaraman for the assessment year 1974-75, the sums received by their respective husbands from the firm for services rendered to the firm are liable to be assessed by invoking section 64 of the Income-tax Act, 1961, held " 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner. There cannot be a contract of service, in strict law, between a firm and one of its partners. Payment of salary to a partner represents a special share of the profits. Salary paid to a partner retains the same character of the income of the firm as profit. " Explanation 2 added by the Finance Act, 1992, from April 1, 1993, in section 15 makes it clear that the salary received by a partner of a firm shall not be regarded as salary. The partner is not entitled to standard deduction in respect of the salary received from the firm. In view of clause (8) of the deed of partnership relating to the abovesaid two firms, wherein it is provided that salary was payable to the partner or partners on the basis of mutual agreement for services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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