Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the firm in which the assessee is a partner representing his joint family is the employer of the assessee and that the remuneration received should be allowed under the head “Salary” with attendant relief under s. 16 of the IT Act ?

Counsel Appeared

C.V. Rajan, for the Revenue : None, for the Assessee

JUDGMENT

n.v. balasubramanian, j. :

At the instance of the Department, the Tribunal has referred the following question of law for the asst. yr. 1982-83 under s. 256(1) of the IT Act, 1961, for our consideration :

“Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the firm in which the assessee is a partner representing his joint family is the employer of the assessee and that the remuneration received should be allowed under the head “Salary” with attendant relief under s. 16 of the IT Act ?”

The assessee is a partner in a partnership firm under the name and style of M.P.C. Narayana Nadar & Sons. In the previous year relevant to the asst. yr. 1982-83, he had received a sum of Rs. 9,000 from the firm, M.P.C. Narayana Nadar and Brothers and claimed that the amount received was salary and is entitled to claim standard deduction in respect of the remuneration under s. 16(i) of the IT Act, 1961. The ITO disallowed the claim of the assessee on the ground that the relationship of employer and employee was lacking between the assessee and the partnership firm and the amount received was liable to be assessed under the head “Other sources” as it represented only the share of profits. The AAC as well as the Tribunal held that the assessee was entitled to standard deduction on the ground that the amount received was salary. The Department has challenged the order of the Tribunal and the Tribunal has stated a case and referred the question of law set out earlier.

The assessee was served on 22nd Nov., 1997, and there was no representation on behalf of the assessee. When his name was called today, there was no representation at the time of hearing this tax case reference.

Mr. C.V. Rajan, learned counsel appearing for the Revenue, brought to the notice of this Court the decision of this Court in CIT vs. N.S.M. Sankarapandian (1997) 142 CTR (Mad) 62 : (1996) 222 ITR 289 (Mad) : TC 58R.239 wherein this Court was dealing a case where the assessee who was the Karta of the HUF was representing the HUF in the partnership firm. This Court held that since the HUF is not a legal entity, it cannot enter into a contract with the firm for payment of salary and the amounts paid by the firm to the partner should therefore, be deemed to be the share of profits assessable in his individual capacity and standard deduction was not available on such amount. The decision of N.S.M. Sankarapandian’s case (supra), in our view, would apply to the facts of this case as well and following the above cited case, we hold that the Tribunal was not correct in holding that the amount received should be assessed under the head “Salary” and the assessee can claim standard deduction under s. 16(i) of the IT Act, 1961, in respect of the same.

Accordingly, we answer the question of law referred to us in the negative and in favour of the Revenue. However, there will be no order as to costs.

[Citation : 250 ITR 611]