Any Remuneration Received By A Partner Of A Partnership Firm Is Not Service: CESTAT Quashes Service Tax Demand

The two-member bench of Ashok Jindal (Judicial Member) and C. J. Mathew (Technical Member) has ruled that the partner of a partnership firm is none other than the same, therefore, one would not provide service to oneself.

The appellants/assessee are the partners of partnership firm namely M/s. Ernst & Young, LLP. The appellants had filed their income tax returns showing components such as 'sale of services', against which partners have shown a certain amount received from the partnership firm as their income.

The income tax returns (ITR) were supplied to the authorities below, who after examining the ITR raised a query to the appellants, why not on account of sale of service be taxed under the Finance Act, 1994. The appellants replied to the queries but authorities below confirmed the demands on account of service tax payable by the appellants.

Counsel appearing on behalf of the appellants submitted that appellants are partners of partnership firms and they received certain remuneration and distribution of profit and the same amount is shown as profit in their income tax returns. The amount is nothing but a remuneration received as a partner of the partnership firm and they have not provided any service to anybody else except to their partnership for which they are the owners. In that circumstance, no service tax is payable by the appellant.

The tribunal observed that as there is no recipient of service, no service has been provided by the appellant. In the income tax returns, the figures shown by the appellants as sale of service is just a portion of the profit earned from the partnership firm. Therefore, the appellants are not liable to pay service tax.

Case Title: Gautam Bhattacharya Versus Commissioner of Central Tax; and Yatin Vijaya Patil Versus Commissioner of Central Tax

Citation: Service Tax Appeal No. 20039 of 2022; and Service Tax Appeal No. 20040 of 2022

Counsel For Appellant: Advocate Prasad Paranjape

Counsel For Respondent: Superintendent C.V. Savitha

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