MAGNUS S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case was assessed in the status of an individual for two assessment years 1951 -52 and 1952 -53, the accounting years ending on 31 -8 -1950 and 31 -8 -1951 respectively. In making these assessments, there was included in the income of the assessee salary and commission on sales received by his wife. This inclusion was made under the provisions of Section 16 (3A) (1) and the dispute relates to this inclusion.

(2.) IT appears that the assessee upto the end of June 1949 was carrying on business in partnership with one Gutmann under the style of Messrs. Metallica Works, a business of refining, melting and casting metals. The partnership was dissolved at the end of June, 1949 and on 1 -7 -1949, he entered into a partnership with his wife Mrs. Liselotte Magnus. The partnership deed was executed on ,13 -10 -1949. Clause 7 of the partnership deed casts an obligation on both the partners to devote their time and attention exclusively to the business of the partnership; but there is no clause in the partnership deed entitling Mrs. Magnus to receive any salary or other remuneration for devoting her time. It was alleged by Mr. Magnus that by an oral agreement, the provision of this clause was varied and Mrs. Magnus was relieved of the obligation of devoting her time and attention to the partnership business. This state of affairs continued till the 1st January, 1950, when it was orally agreed that Mrs. Magnus should look after the administrative side of the partnership business and should receive a sum of Rs. 1,000/ - per month as remuneration and also commission at 1 per cent., on the sales effected by the firm during the accounting year. The Tribunal did not consider it necessary to give any finding as to whether Clause 7 was varied orally as alleged, because they took the view that what they had to determine was the capacity in which Mrs. Magnus received the sum of Rs. 1,000/ -a month and the commission at 1 per cent., on sales. They came to the conclusion that in law she could not be an employee of the firm in which she was a partner; and since she did not receive this remuneration as an employee of the firm, obviously she could only receive the remuneration by virtue of being a partner in the firm. The Tribunal, therefore, held that the salary and commission paid to the wife was rightly included in the income of the assessee. On these facts the following two questions have been referred to us by the Tribunal:

(3.) OUR answer, therefore, to question (2) would be in the affirmative.