Law: Income Tax Act, 1922

Section: 2,2(6B),4(3)(viii),10(4)(b).16(1)(b)

[Indian Income-tax Act, 1922 (XI of 1922)].......Sections 2(6B), 4(3) (viii), 10(4) (b). 16(1) (b)-Agricultural income-Firm-Partner-Salary-Income of firm from growing and selling tea-Partly agricultural and partly non- agricultural-Corresponding pr proportion of partriers salary -Whether also agricultural income--Held yes-Income-tax Rules, 1922, v. 24. A firm is not a legal person even though it has some attributes of personality. In income-tax law a firm is a unit of assessment, by special provisions, but is not n 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. Held, accordingly, that salary paid to a partner by a firm which grows and sells tea, is exempt from tax under rule 24 of the income-tax Rules, 1922. to the extent of 60 per cent. thereof representing agricultural income and is liable to tax only to the extent of 40 per cent. Case over ruled :- MATHEW ABRAHAM v. CIT (1964) 51 ITQ 467. Case affirmed- R. M CHIDAMBARAM PILLAI v. CIT (1970) 77 ITR 944(BF). Cases referred to : Addanki Narayanappa v. Bhaskara Krishnappa (1966) AIR 1966 SC 1300. Anglo-American Direct Tea Trading Co. v. Commr. of Agri. IT (1968)6 ITR 667 (SC) ; Bhagwanji Morarji Goculdas vi Alembic Chemical Works Co. Ltd. (1948) 18 Comp Cas 205 ; AIR 1948 PC 100; CIT v. B. S. Minning Co. (1922) 1 ITC 176 (Mad) (FB) ; CIT v. Ramniklal Kothari (1969) 74 ITR 57 (SC) ; In re Shand (1880)14 on D 122 (CA) ; Dulichand Laxminarayan v. CIT (1956) 29 ITR 535 : (1956) SCR 154 (SC ); Karmtharuvi Tea Estates v. State of Kerala (1963)48 ITR (SC) 83; (2963) Supp. SCR 823 ; Shand, n re : Corbett ex-parte (1880) 14 Ch D 122 (CA) ; Tea Estate India P. Ltd. v. CTT (1976) 103 ITR 785 (SC) and Trustees of Port of Bombey v. Premier Automobiles Ltd. (1974) 4 SCC 710 ; AIR 1974 Appeals from the and order dated December 5, 1969, of the Madras High Court in Tax Cases Nos. 114 and 115 of 1964 (References Nos. 48 and…

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