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TMI Blog1984 (7) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... ein he held that the salary income received by the partners who represented their respective HUFs in the abovesaid firm should not be included in the hands of the HUF but should be separately assessed in the hands of the partners in individual status. In the common grounds, the revenue urged that the orders of the Commissioner (Appeals) should be set aside and that of the ITO be restored. 2. The assessees are HUFs (specified) and they are represented in the firm, Anguvilas M.V. Muthiah Pillai Firm by their kartas. The firm is carrying on business in the manufacture and sale of scented tobacco. Originally assessment under section 143(3) of the Income-tax Act, 1961 ('the Act'), was made in the case of each partner for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration to the partners and there was provision for increasing the salary to the partners by mutual agreement of the partners. Further, the remuneration was not paid for the individual skill because the business was in existence even prior to the partition on 4-2-1954 and, therefore, the right to claim salary arose as a result of partnership contract and not for individual skill. As partners they were only required to perform normal work of the firm and, therefore they were not entitled to any payment in individual capacity. The partners played dual role---one in the capacity of partner in looking after the firm's business and another as manager of the HUF and claim of salary for individual services creates conflicts of interests and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of remuneration by the partner in his individual capacity then the department will be justified in including the salary income in the HUF assessment. In view of this decision, the Commissioner (Appeals) set out to ascertain the facts of the case to find out whether the remuneration received by the partners was for the services rendered by them in their individual capacity or was merely a different name for his share of the net profit of the firm. In this regard, the Commissioner (Appeals) came to the conclusion that he was satisfied that each of the partners has a special skill and experience and the facts that no member of the family was paid remuneration before partition on 4-2-1954 and the kartas included their respective remuneration in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the individual and not in the hands of the HUF. He has also referred to the affidavits dated 28-8-1972 filed by Smt. Mariammal to the effect that the partners have rendered actual services to the firm and those affidavits stood unrebutted. For these reasons, the Commissioner (Appeals) came to the conclusion that the remuneration should be assessed in the individual hands of the partners and not as part of share income of the firm in the hands of the respective HUFS. 6. The learned departmental representative has been heard and besides reiterating the common grounds taken in these appeals he emphasised the fact that in law there could be no employer-employee relationship as held by the Supreme Court in the case of CIT v. R.M. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .C. Shah [1969] 73 ITR 692, CIT v. Gurunath V. Dhakappa [1969] 72 ITR 192, V.D. Dhanwatey and also the decision of the Supreme Court in R.M. Chidambaram Pillai's case and held that merely because payment of salary to the karta was on account of a clause in the deed of partnership that by itself would not necessarily render a payment to the individual a payment to the HUF and the payment of salary to the karta could not be assessed as the income of his HUF. The High Court has also held that where an HUF is a partner in a firm through its karta and if the karta has received any remuneration from the firm because of his special aptitude for the business of the firm and for services rendered by him to the firm and if the remuneration is earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective HUFS. Therefore, keeping in view the specialised services rendered by the partners which fact remains uncontroverted the remuneration paid to the partners should be regarded only as a reward for the human capital brought in by them and, therefore, the remuneration should be assessed in the individual hands of the respective partners. 9. The Madras High Court in the case of CIT v. Surendra Manilal Mehta 1984 Tax LR 371 held in similar circumstances as under: "... Indeed Sri Suresh B. Mehta has been found by the Tribunal to possess certain special skill. Payment of remuneration for making available to the business of the firm such special skill would really be in the nature of compensation for services rendered by the exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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