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TMI Blog1991 (11) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 16(i) of the Income-tax Act in respect of the salaries received from the limited company in which he is a Director and from the firm in which he is a partner. The ITO has mentioned in his order that the assessee had not filed any evidence to establish the relationship of employer and the employee between the so called employers and himself. He has further mentioned that he had not filed a copy of Articles of Association and the terms of his employment by which he could be considered to be an employee of the Company. The ITO also mentioned that deductions under section 16(i) were not allowable in the case of salary as a partner because there was no relation as employee of the firm ; the assessee partner is an owner of the firm. 2. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in earlier years also these deductions were allowed to the assessee although the assessments were framed under section 143(1). 6. So far as salary from the firm was concerned, the learned counsel heavily relied on the decision of this Bench in the case of Chhitermal Goyal holding that a partner drawing salary was entitled to deductions under section 16(i). He also referred to the decision of the Bombay Bench of the Tribunal in the case of Mohammed Ibrahim Shahdad v. ITO [1980] 18 CTR (Trib.) 3 where also it had been held that a partner was entitled to standard deductions under section 16(i) from the salary received by him from the firm. 7. We have carefully considered the arguments from both the sides and have perused the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Salaries : 15. The following income shall be chargeable to Income-tax under the head " Salaries "-- (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not ; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him ; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. " " Deductions from salaries : 16. The income chargeable under the the head " Salaries " shall be computed after making the following deductions, namely :-- (i) a deduction of a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which alone could bring it within the purview of sections 15 and 16(i) of the Income-tax Act. 9. A comprehensive reading of all the provisions of law and the decision of the Hon'ble Supreme Court in this regard makes it clear that firstly the relationship between a firm and its partner cannot be that of an employer and an employee ; secondly, salary said to be paid by a firm to its partner is in fact only a mode of distribution of profits of the firm ; thirdly, since the relationship between the firm and its partner cannot be that of an employer and an employee, the payment of salary by the firm to its partner does not come within the purview of section 15 of the Income-tax Act and hence is not chargeable under the head " Salaries ", of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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