Commissioner of Income Tax vs M.P.C.K. Mohandoss

N.V. Balasubramanian, J.—At the instance of the Department, the Income Tax Appellate Tribunal has referred the following question of law

for the assessment year 1982-83 u/s 256(1) of the Income Tax Act, 1961, for our consideration :

Whether, on the facts and in the circumstances of the case, the Appellate 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 u/s 16 of the Income Tax Act ?

The assessee is a partner in a partnership firm under the name and style of M. P. C. Narayana Nadar and Sons. In the previous year relevant to

the assessment year 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 u/s 16(i) of the Income Tax Act, 1961. The

Income Tax Officer 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 Appellate Assistant Commissioner as well as the Appellate 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 Appellate Tribunal has stated

a case and referred the question of law set out earlier.

The assessee was served on November 22, 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 reported in

Commissioner of Income Tax Vs. N.S.M. Sankarapandian, wherein this court was dealing a case where the assessee who was the karta of the

Hindu undivided family was representing the Hindu undivided family in the partnership firm. This court held that since the Hindu undivided family 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 Commissioner of Income Tax Vs. N.S.M. Sankarapandian, , 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 u/s 16(i) of the Income Tax 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.