Remuneration to partner is taxable; managing partner's allowance and commission are separately assessable, not covered by tea-sale exemption.

The note addresses whether a managing partner's allowance and commission under a partnership agreement are taxable separately from the partner's share of profits. It applies the rule treating the firm as the taxable unit for tea-sale income and holds that a contractual remuneration to a partner is a distinct receipt of personal income; such amounts do not fall within the tea-sale exemption and are assessable in full in the partner's hands. The discussion recognises that firm/partner computation rules aim to prevent double taxation but do not convert partner remuneration into exempt firm income.

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Issues: Whether the allowance and commission received by the managing partner as remuneration under the partnership agreement are assessable to tax in his hands in full as income distinct and separate from his share of the profits of the firm.

Analysis: The Court examined rule 24 of the Income-tax Rules (income derived from sale of tea) and the provisions of the Income-tax Act concerning taxation of firms and partners including section 10(4)(b), section 16(1)(b), section 23(5), section 14(2) and section 24. The Court held that the firm (as the seller of tea) is the relevant taxable unit under rule 24 and that the special agreement to pay a managing partner an allowance and commission creates remuneration distinct in character from the firm's business income. The Court further noted that deductions disallowances and computation provisions for firms and partners are directed to avoid double taxation, but that exemption under rule 24 applies to the firm's income derived from sale of tea and does not extend to amounts characterisable as remuneration to a partner for services under a partnership agreement. Authorities on remuneration to partners and the nature of such receipts were considered and applied to conclude that the allowance and commission are not agricultural or rule 24 exempt income.

Conclusion: The allowance and commission received by the managing partner are assessable in full as income distinct and separate from his share of the profits; the question is answered against the assessee.

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