Partner remuneration treated as adjusted profit share, not separate service income, for agricultural income assessment

A partner's remuneration for services as managing partner was held to be part of the firm's profits rather than income from a separate contract of employment, because a firm is not a legal person distinct from its partners and a contract of service cannot, in strict law, exist between them. On that footing, the salary was treated as a mode of adjusting the partner's share in the partnership income. The Court held that references to the Income-tax Act and contractual terms in the partnership deed did not displace the general law of partnership, and the remuneration was rightly included in the partner's agricultural income assessable in his hands.

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Issues: Whether remuneration paid to a partner for services rendered as managing partner is to be treated as agricultural income in the partner's assessment under the Agricultural Income-tax Act.

Analysis: The decision turned on the legal character of a partner's remuneration. The Court relied on the principle affirmed by the Supreme Court that a firm is not a legal person distinct from its partners, and therefore a contract of service, in strict law, cannot exist between the firm and one of its partners. On that footing, salary stipulated for a partner's services is not derived from a separate source; it is only a mode of adjusting the partner's share in the firm's profits. The Court held that the reliance placed on the provisions of the Income-tax Act and on contractual clauses in the partnership agreements did not displace this principle, since partnership arrangements remain subject to the Partnership Act and the general law of partnership.

Conclusion: The remuneration received by the partner was rightly treated as part of the agricultural income assessable in his hands, and the questions referred were answered against the assessee.

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