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TMI Blog1985 (2) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... at he was entitled to a fixed salary over and above the share in the partnership firm and, therefore, the assessee should be allowed standard deduction under section 16(i). It was also indicated that standard deduction was allowed during the assessment, year 1981-82. The assessee relied on a decision of the Bombay Tribunal in Mohamad Ibrahim Shahdad v. ITO [1980] 4 Taxman 576. He also referred to the various clauses of the partnership deed before the AAC. The AAC did not accept the argument of the assessee and he gave the finding as hereunder : "4. I have carefully considered the submissions of the appellant and I find that a partner of a firm though entitled to a fixed amount of salary, which is not in keeping with his profit sharing rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of the partnership deed dated 23-12-1980 of Price Waterhouse Co. and the copy of the order of the Bombay Bench of the Tribunal in Mohamad Ibrahim Shahdad's case. Dr. Pal referred to specifically the clauses 7 to 12 of the partnership deed and indicated that the partners were getting fixed remuneration as indicated in clause 10, whereas, the profit sharing ratio was described in clause 7 of the deed. It was also pointed out by Dr. Pal that it was provided in clause 11 of the partnership deed that the salary drawn by the partners shall be debited to the establishment or working expenses of the partnership. Relying upon the clauses of the partnership deed and referring to sections 40(b) and 67(a) and (b) of the Act, he urged that the sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] 73 ITR 162 (Ker.). 5. Dr. Pal, in reply to the argument of the departmental representative, urged that all the cases relied on by the departmental representative are not applicable on the facts of the case. Dr. Pal again referred to the decision in Major Conville's case and read a sentence at p. 407 and urged that the assessee was eligible for standard deduction. 6. The short point for consideration is whether a partner who is receiving salary from the partnership firm is eligible for standard deduction under section 16(i). The question of allowability of standard deduction arises only because of the nomenclature under which he is getting the remuneration from the firm. It has been described in the partnership deed that the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a very small share of the profits and yet who devote the whole of their time and energy to the business. When such salaries are drawn out in cash from month to month, they should be charged to Partners' Salaries Account. Where, however, lump sums are withdrawn at irregular intervals on account of salaries, these would be debited to the Drawings Account of the partner concerned and an adjustment would have to be made at the end of each financial period, debiting Partners' Salaries Account and crediting the Capital Account of the Partner with the annual amount of salary due to him." The learned author William Pickles on Accountancy, 4th edition, at page 2211, had described as follows : "Circumstances frequently arise in partnership aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax law a firm is a unit of assessment, by special provisions, but is not a full person. 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. Payment of salary to a partner represents a special share of the profits. Salary paid to a partner retains the same character of the income of the firm." 9. Dr. Pal in course of the hearing has placed reliance in two Tribunal decisions and urged that his argument is supported by the conclusion of the said orders of the Tribunal. Firstly, according to the accountancy principle, it has been decided that the salary received by the partner was only a part of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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