1984 (1) TMI 162

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....essee has rendered services as an individual employee to the firm. 2. The assessee is an individual and the assessment year involved is 1980-81 for which the accounting year ended on 31st March, 1980. He is a partner in the firm M/s Dinamalar which publishes a Tamil News daily named "Dinamani'. While the share of profits inclusive of remuneration was assessed in the hands of HUF, the remuneration received was assessed separately in the status of 'individual' in a protective manner but the standard deduction claimed by the assessee was not allowed on the ground that the remuneration received was not at all salary and, therefore, not entitled to standard deduction. The ITO was of the view that there was no employer-employee relationship be....

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....ion for taking part in the conduct of the business but it is subject to contract between the partners. In other words, he contended that the remuneration was paid only for special services rendered by the partners to the firm. The learned Departmental Representative, on the other hand, submitted that s. 67 r/w 40(b) of the IT Act, 1961 is absolute in nature and must prevail. In other words, he contended that the share of profits included any remuneration paid to partner also. Further he submitted that the salary paid to a partner by a firm is nothing but special profits as held by the Supreme Court in the case of CIT vs. R.M. Chidambaram Pillai. 5. We have duly considered the rival contentions and the facts of the case. At the outset we ....

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.... remuneration differently to different partners inasmuch as in some cases only salary has been prescribed while in some other cases salary plus allowance have been prescribed. The Supreme Court in the case cited supra has observed that since a contract of employment requires two distinct persons, namely, the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners. Therefore, the Supreme Court rules that any agreement for remuneration of a partner for taking part in the conduct of the business must be regarded as a portion of the profits. The Supreme Court also addressed itself to the question as to what is the real nature of the salary paid to a partner vis-a-vis the income of ....