1995 (2) TMI 41

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.... Income-tax Act, 1961. The Income-tax Officer has rejected the claim of the assessee for standard deduction on the ground that the salary drawn by a partner from the partnership-firm does not qualify for deduction under section 16(1) of the Income-tax Act. The appellate authority has considered the matter and was of the view that the character of salary received by a partner from a partnership-firm cannot be considered as chargeable under the head "Salaries". In these circumstances, the deduction under section 16(1) was held not allowable to the assessee. The Income-tax Appellate Tribunal has, however, following its decision in the case of Chhitarmal Goyal allowed the standard deduction. On the request of the Revenue, the following question....

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....under the head of "Salary". In the case of a partner, the income which is received by way of salary is of the same character as income from business. Even under the law, the firm is not a legal person nor has any legal existence apart from its partners and is merely a compendious name to describe its partners. Though under the income-tax law, it is a unit of assessment by virtue of the special provisions, but it cannot be considered that the firm is an employer of its partner. The payment of salary to a partner represents a special share of the profits. The matter was considered by the apex court in the case of CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292 and it was held that there cannot, be a contract of service, in strict law, betw....