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Assessment of partner's share of profit in a firm for tax purposes based on method of accounting chosen by the partner. Detailed Analysis: Issue 1: Assessment of partner's share of profit The case involved the assessment of an individual, who is a chartered accountant by profession, as a partner in a chartered accountants' firm for the assessment year 1977-78. The individual followed the cash basis method for his own profession but showed a different amount as taxable in his hands compared to what was allocated from the firm's profit. The Income Tax Officer (ITO) did not accept the individual's contention and brought a higher amount to tax. Issue 2: Interpretation of relevant tax provisions The Appellate Assistant Commissioner (AAC) pointed out that under the Income-tax Act, a partner and the firm are not separate entities, and a partner's share of profit from the firm is to be included in the partner's total income. The AAC referred to a decision of the Bombay High Court to support this position. Issue 3: Application of specific tax provisions The individual appealed further, arguing that the provisions of section 67 of the Income-tax Act do not override an assessee's right to choose the method of accounting for computing business or professional income. The individual's representative relied on a decision of the Delhi High Court to support the argument that deductions can be allowed in certain cases even if not explicitly mentioned in the tax provisions. Issue 4: Legal interpretation of relevant sections The Appellate Tribunal analyzed the provisions of section 182(1) and section 67(1) of the Income-tax Act. Section 182(1) mandates that a partner's share of income from a registered firm shall be included in the partner's total income and assessed accordingly. Section 67(1) treats the amount allocated to a partner as the partner's share in the income of the firm, creating a legal fiction for tax purposes. Issue 5: Precedent and legal principles The Tribunal referred to previous court decisions to support its conclusion that the income of a partner from a partnership accrues only when the firm closes its books of account. The method of accounting chosen by the partner loses significance in determining the partner's income, as the income is deemed to accrue at the end of the accounting year. Conclusion: The Tribunal dismissed the individual's appeal, emphasizing that the starting point for computing the income of a partner is the share allocated from the firm. The individual's method of accounting does not override the specific provisions of the Income-tax Act regarding the assessment of a partner's income from a firm.
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