1984 (3) TMI 186

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.... ground that there was not relationship of an employee and employer, inter alia. In the computation of income he assessed the salary income of Rs. 22,200. 2. On appeal, the AAC took the view that salary is possible only when there is relationship of an employee and employer, which is only possible as a result of contract. He observes that the firm, which is not a legal person cannot enter into an agreement of an employee and employer with any partner. The AAC brief observes as follows: "..........Since the salary derived by a partner from the partnership firm is not in his capacity as an employee and the character of such receipts continuous to receive profits from business of profession such income would not be chargeable under the h....

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.... (Bom) is squarely applicable to the facts of the instant case. It is also argued by him that even on the reasoning of the ITO, standard deduction with regard to salary income of Rs. 9,600 received from Khadi Gram Udyog Sangh, Jaipur, cannot be disallowed, because the relationship of an employee and employer between the assessee and the Sangh cannot be disputed. He, therefore, argues that in any case the assessee was entitled to standard deduction out of salary income of Rs. 9,600 which was received from Khadi Gram Udyog Sangh of which the assessee was an employ. On the other hand Shri Singh relied on CIT vs. L. W. Russel (1964) 53 ITR 91 (SC), CIT vs. Lakshmipati Singhania (1973) 92 ITR 598 (All), CIT vs. R. M. Chidambaram Pillai, etc. 197....

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....the reading of s. 40(b) which, in short, declares that any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner will not be allowed as deduction. The argument of Shri Goyal is that if no salary can be paid at all by a firm to a partner, then there was no need for legislature to prohibit the deduction of salary under s. 40(b) and also there was no need to compute the income of partner including salary under cl. (a) of s. 67(1). In short, the argument of Shri Goyal is that the provisions as contained in s. 67(i)(a) and s. 40(b) clearly postulate that salary can be paid by a firm to a partner, therefore, the legislature prohibited the deduction of salary under s. 40(b) and specifically stated in s. 67(....