TaxTMI 
TaxTMI 
1998 (9) TMI 111
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....n their representative capacity. 2. There cannot be any contract of service between the firm and its partners and consequently, there can be no question of a partner of a firm being an employee thereof. The salary paid to a partner represents the special share of the profits and retains the character of the income of the firm. (189 ITR 51 Mad. High Court)." 2. The case was fixed for hearing for 15-9-1998. Neither the assessee nor his authorise representative attended the proceedings. The case is, therefore, decided on merits in accordance with rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963. 3. The Ld. DR relied on the order passed by the Assessing Officer. 4. The Assessing Officer disallowed salary to the tune of Rs. 41,600 ....
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....ohinder Pal Arora both of whom were partner in the firm in their HUF capacity. The assessee has claimed that the salaries are allowable and provisions of section 40(b) cannot be applied because of the following facts :- Salary has been paid to these two persons in consideration of their individual and personal skill and efforts and not by virtue of their partnership in the firm in HUF/ representative capacity because :- (i) There is no mention of amount or basis of salary in the partnership deed (copy attached in paper book as S.No. 14). (ii) Salary has not been paid to other five partners which means that Sh. Mohan Lal Arora and Sh. Mohinder Pal Arora were actively and personally engaged in the running of the business and otherwise othe....
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.... capacity is deductible while computing the income of the firm chargeable under the head 'Profit & gains of business or profession' even for periods prior to April, 1985 from which date Explanation 2 to section 40(b) was inserted in the I.T. Act, 1961. In the above referred case, the worthy SC has referred to decision of Rajasthan High Court in the case of Gajanand Poonam Chand & Bros. v. CIT [1988] 174 ITR 346. In that case the worthy Rajasthan High Court has referred to the definition of 'Person' in clause (31) of section 2, it pointed out that the definition shows clearly that an individual, HUF and a firm are distinct persons/entities for the purposes of the I.T. Act. The relevant portion of judgment of worthy Supreme Court is reprodu....
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.... a business. Firm is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law, a firm is a unit of assessment, by special provisions, but is not a full person which leads to the next step that since a contract of employment requires two distinct persons, viz.., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners. So 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 being made over as a reward for the human capital brought in section 13 of the Partnership Act brings into focus this basis of partnership business. This court also quoted wit....