Section 16(1)(b) of the Indian Income-tax Act, 1922

Section 16(1)(b) of the Indian Income-tax Act, 1922 — the law in short

What the courts have decided on section 16(1)(b) of the Indian Income-tax Act, 1922, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v R.M. Chidambaram Pillai Supreme CourtHelps taxpayerSuperseded by amendment
  I draw a salary from my firm, which grows and manufactures tea. Only 40 per cent of the firm's income is taxable as business income - is my whole salary taxable, or only 40 per cent of it?
  Only the taxable proportion. The Supreme Court held that a firm is not a legal person, and since a contract of service needs two distinct persons there can be no contract of employment between a firm and its own partner. A salary agreed to a partner is therefore a special share of profits - profits under another name - and takes the character of the firm's income. Where the composite income from tea is apportioned so that 60 per cent is agricultural and beyond the Union's reach, 60 per cent of the partner's salary shares that character too. The position is different for a stranger who is not a partner.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.