High Court Of Punjab & Haryana
CIT vs. Ghansham Dass
Section 16(i)
Asst. Year 1978-79, 1979-80, 1980-81
Jawahar Lal Gupta & Ashutosh Mohunta, JJ.
IT Ref. Nos. 80 to 82 of 1984
4th December, 2001
Counsel Appeared
R.P. Sawhney with Kishan Singh, for the Appellant : None, for the Respondent
JUDGMENT
JAWAHAR LAL GUPTA, J. :
Is the partner in a firm entitled to standard deduction under s. 16(i) of the IT Act, 1961, against the salary drawn by him ? This is the short question that arises for consideration in this case. A few facts as relevant for the decision of this case may be briefly noticed.
2. The assessee is a partner in a firm. He filed his returns for the assessment years from 1978-79 to 1980-81. Besides the share in the profits, he had also drawn salary from the firm. In respect of salary, a claim for deduction under s. 16(i) was made. This claim was accepted by the ITO. However, on 14th July, 1983, the AO passed an order under s. 154 and disallowed the claim for deduction. The assessee filed an appeal. It was dismissed. He approached the Tribunal. The assessee having succeeded, the Revenue filed three petitions under s. 256(1). These petitions were accepted. The Tribunal has referred the following question for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the assessee is entitled to standard deduction under s. 16(i) of the IT Act, 1961 against the salary income from the firm in which he is a partner in each of the accounting periods relevant to asst. yr. 1978-79, 1979-80 and 1980-81.”
3. Mr. R.P. Sawhney, learned counsel for the Revenue contended that the Tribunal had erred in accepting the claim of the assessee for deduction under s. 16(i). Learned counsel referred to the decisions in CIT vs. Pramod Kumar Jain (1995) 125 CTR (Raj) 154 : (1995) 216 ITR 598 (Raj) : TC 58R.238 and CIT vs. N.S.M. Sankarapandian (1997) 142 CTR (Mad) 62 : (1996) 222 ITR 289 (Mad) : TC 58R.239. The case was initially taken up for hearing on 28th Nov., 2001. No one had appeared for the assessee. The case was adjourned to 29th Nov., 2001. Even on that day, the assessee had chosen to stay away. The arguments were, thus, concluded and the order was reserved. Chapter IV of the Act deals with the computation of total income. Sec. 14 provides for the classification of income under various heads. Income from ‘Salaries’ is treated separately from the income on account of ‘Profits and gains of business or profession’. Under s. 15, the “income shall be chargeable to income- tax under the head ‘Salaries’ when it is paid or due from an employer to an employee.” Under s. 16, the deductions are admissible only from “the income chargeable under the head ‘Salaries……” Thus, it is clear that an assessee is entitled to deductions under s. 16 only when he has received salary from an employer. Not otherwise. The Tribunal while considering the matter placed reliance on the provision of s. 67 of the Act. On the basis of this provision, the Tribunal took the view that a partner can draw salary from the firm in which he is a partner. “By referring to the decision of the Madras High Court in Commr. of Agrl. IT vs. Tipperary Estates Company (1970) 76 ITR 396 (Mad) : TC 17R.1051, the Tribunal held that “a partner of a firm is entitled to salary for rendering the services to the firm and in case a person draws salary he is entitled to the statutory deduction under s. 16 of the Act…….” It appears that even the Bombay Bench of the Tribunal had taken a similar view in Mohammed Ibrahim Shahdad vs. ITO (1980) 18 CTR (Trib) (Bom) 3. Is this view correct ? Sec. 67 of the Act lays down the method of computing a partner’s share in the income of the firm. ‘Salary’ is one of the components. However, the ‘Salary’ as contemplated under s. 67 does not qualify for deduction unless it meets with the requirements of s. 15. Under this provision, only that income can be assessed under the head ‘Salaries’ which is due from or paid by an employer to an employee. ‘Otherwise, the amount paid by the firm to a partner “by whatever name called” shall fall under the category of “Profits and gains of business or profession.”
In the present case, there was no relationship of a employer and an employee between the firm and the assessee. Thus, the income disclosed by the assessee as salary would not fall within s. 15. Consequently, the deductions as contemplated under s. 16 shall not be available to him.
The matter is not res integra. In CIT vs. R.M. Chidambaram Pillai Etc. 1977 CTR (SC) 71 : (1977) 106 ITR 292 (SC) : TC 33R.240, at p. 295, the question posed was “What is the real nature of the salary paid to a partner vis-a- vis the income of the firm ? It was answered in the following words : “On principle, payment of salary to a partner represents a special share of the profits and is, therefore, part of the profits and taxable as such.” Still further, in Parmod Kumar Jain’s case (supra), it was held that “the control and supervision of the employer is a sine qua non of the relationship between the employer and the employee. In accordance with the provision of s. 16 of the Act, the deduction is allowable from the income which is chargeable under the head of ‘salary’. In the case of a partner, the income which is received by way of salary is of the same character as income from business.”
This view was reiterated by the Madras High Court in N.S.M. Sankarapandian’s case (supra).
10. The concept of ‘Salary’ goes back to the days of Roman empire. The solidiers were given ‘Sal’ (salt) as a reward for their services. With the passage of time, the mode has changed from salt to money. However, ‘salary’, in its conceptual and legal sense, remains a reward for the services rendered.
11. The partners in a firm work for themselves. Not for any employer. They serve themselves. Not anybody else. They are nobody’s servants. They are their own masters. Thus, the salary drawn by the partners is only a different name for the share in profits. Nothing more. The doubt, if any, was set at rest by the incorporation of s. 28(v) w.e.f. 1st April, 1993, when it was provided that “any interest, salary bonus, commission or remuneration, by whatever name called due to or received by, a partner of a firm from such firm” shall be “chargeable to income- tax under the head “profits and gains of business or profession”.
In view of the above, we hold that the Tribunal was not right in allowing the standard deduction to the assessee. The question is, accordingly, answered in favour of the Revenue. Since no one has appeared for the respondent, we make no order as to costs.
[Citation : 254 ITR 355]