1991 (11) TMI 122 - AT - Income Tax

Summary

Issues:
Interpretation of section 16(i) of the Income-tax Act regarding standard deductions for salaries received by an assessee who is a whole-time Director of a limited company and a partner in a firm.

Analysis:
The case involved a dispute over whether the assessee was entitled to standard deductions under section 16(i) of the Income-tax Act for salaries received from a limited company where he was a Director and from a firm where he was a partner. The Income Tax Officer (ITO) contended that the assessee had not provided evidence to establish the employer-employee relationship with the companies. The ITO also argued that a partner is not an employee of the firm and thus not eligible for deductions under section 16(i) for salary received from the firm.

The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, stating that the assessee had provided evidence of his appointment as a whole-time Director and salary certificates from both the company and the firm. The CIT(A) relied on a previous decision by the Bench to allow deductions under section 16(i) for the assessee. The Revenue challenged the deductions allowed by the CIT(A) but did not contest the admission of fresh evidence.

During the appeal, the Departmental Representative argued that a partner is the owner of the firm and cannot be considered an employee, hence not eligible for deductions under section 16(i) for salary received from the firm. The assessee's counsel contended that the Director of the company is an employee, supported by certificates and resolutions. The counsel also referenced previous decisions allowing deductions for partners receiving salary from the firm.

The Tribunal analyzed various legal provisions and previous court decisions, including the Supreme Court ruling that a firm and its partner cannot have an employer-employee relationship. The Tribunal concluded that salary paid by a firm to its partner is a distribution of profits and not chargeable under the head "Salaries." Therefore, such salary is not eligible for standard deductions under section 16(i) of the Income-tax Act. The Tribunal held that the assessee cannot benefit from previous decisions cited from the Jaipur and Bombay Benches.

In summary, the Tribunal determined that salary paid by a firm to its partner does not qualify for standard deductions under section 16(i) of the Income-tax Act due to the nature of the relationship between a firm and its partner as outlined in relevant legal provisions and court decisions.