Partner remuneration in tea-firm taxation follows the taxable income portion, with salary and interest treated as profits for allocation.

In computing a partner's share income from a tea firm, salary and interest paid to partners are treated as part of the firm's profits rather than deductible employment . A partner cannot stand in the position of an employee of the firm, so these payments are brought into the statutory profit-sharing computation as partner remuneration. Because only 40% of a tea firm's income is taxable under the relevant rule, the same taxable proportion applies when allocating salary and interest to partners for assessment of their share income. The Tribunal's approach reflected that only the taxable portion of such payments is relevant for partners' assessment.

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Issues: Whether, in computing a partner's share income from a tea-firm, only 40% of the salary and interest paid to the partners could be allocated because only 40% of the firm's income was taxable under rule 8.

Analysis: Salary and interest paid by a firm to a partner are not deductible items of expenditure in computing the firm's income, and in the partner's hands they retain the character of the firm's profits. A partner cannot, in law, stand in the relation of employee to the firm of which he is a member, and the statutory computation provisions require the partner's share to be worked out on the basis that such payments are part of the profits distributed among the partners. Since the taxable income of a tea-firm is computed by treating only 40% of the tea income as taxable, the same principle governs the allocation of salary and interest paid to partners: only the taxable portion is to be taken into account for apportionment among them.

Conclusion: The Tribunal was right in holding that only 40% of the salary and interest should be allocated for arriving at the share income assessable in the hands of the partners.

Ratio Decidendi: A partner's salary and interest from a firm are treated as part of the firm's profits for tax computation, and where only a portion of a tea-firm's income is taxable, only that taxable portion of such payments can be allocated for assessment of the partners' share income.

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