TMI Blog1995 (2) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... has rejected the claim of the assessee for standard deduction on the ground that the salary drawn by a partner from the partnership-firm does not qualify for deduction under section 16(1) of the Income-tax Act. The appellate authority has considered the matter and was of the view that the character of salary received by a partner from a partnership-firm cannot be considered as chargeable under the head "Salaries". In these circumstances, the deduction under section 16(1) was held not allowable to the assessee. The Income-tax Appellate Tribunal has, however, following its decision in the case of Chhitarmal Goyal allowed the standard deduction. On the request of the Revenue, the following question of law has been referred for the opinion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner, the income which is received by way of salary is of the same character as income from business. Even under the law, the firm is not a legal person nor has any legal existence apart from its partners and is merely a compendious name to describe its partners. Though under the income-tax law, it is a unit of assessment by virtue of the special provisions, but it cannot be considered that the firm is an employer of its partner. The payment of salary to a partner represents a special share of the profits. The matter was considered by the apex court in the case of CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292 and it was held that there cannot, be a contract of service, in strict law, between a firm and one of its partners. Payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, he cannot be considered as an employee of himself. The Tribunal has referred to the decision in the case of Commr. of Agrl. Income-tax v. Tipperary Estates Co. [1970] 76 ITR 396 (Mad), but in view of the decision of the apex court in the case of R. M. Chidambaranm Pillai [1977] 106 ITR 292 referred to above, the said decision cannot be considered as laying down the correct law. It may also be observed that 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 but this amendment has been brought on the statute book because of the change of basis of assessment of the firm and the partner under the new scheme. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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