Remuneration received by partners not liable to service tax

Remuneration received by partners not liable to service tax
[2013] 35 taxmann.com 112 (Article)
Remuneration received by partners not liable to service tax
PRITAM MAHURE
CA
A partner may receive income from the partnership firm in the name of 'salary'/'remuneration'. In my view, 'salary'/'remuneration'received by a partner from the partnership firm may not be liable to service taxfor the following reasons:
As per section 66B of the Finance Act, 1994 ('Act') it is on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. Thus, service tax is applicable only if there are two separate persons. So, the question that needs to be answered here is whether the partner and the partnership firm are two separate persons?
Its pertinent to note that a 'partnership firm' is nothing but a collective noun for all the partners. As per the Partnership Act, 1932 the firm and its partners are treated as one and the same. A contract of employment would envisage two people, i.e., employer and employee. However, in legal sense one cannot say that partner is employed by the firm as an 'employee', as a person cannot be his own employer. Thus, partners and partnership firm cannot be treated as two separate legal persons to say that partners are providing services to the firm. So, as the firm and partners are one and the same the levy would fail.
Further, even though the terminology used may be 'salary'/'remuneration', yet the amount paid would still be nothing but a share of profit only. A return on investment is anyways not liable to service tax, as the same would qualify as a transaction in money and, thus, would stand excluded from the definition of 'service' (refer to para 2.8.4 of Education Guide)