1977 (8) TMI 84 - AT - Income Tax

Summary

Issues:
1. Taxation of income in a sub-partnership agreement leading to potential double taxation.

Analysis:

The case involved an appeal by the Revenue for the assessment year 1973-74 concerning a registered firm where Shri Alisher and Shri Bhanwar Singh entered into an excise contract for deshi liquor. Shri Alisher, lacking finances, formed a sub-partnership with Shaffi Mohd., who provided financial support. The Income Tax Officer (ITO) treated this as a sub-partnership firm and computed the total income accordingly. The Appellate Assistant Commissioner (AAC) ruled that taxing the share income from the original firm in the hands of the sub-partnership would result in double taxation and deleted the tax levied by the ITO on the sub-partnership.

The Departmental Representative argued that when Shri Alisher subdivided his share of profit with Shaffi Mohd., the income would be taxable again, justifying potential double taxation unless explicitly prohibited. The counsel for the assessee supported the AAC's order. The tribunal analyzed the situation, noting that Shri Alisher had already paid tax on his share of profit from the main firm. The sub-partnership arrangement facilitated the main firm's business operations. The tribunal held that subjecting Shri Alisher to further taxation on the subdivided profit with Shaffi Mohd. would constitute double taxation on the same income, concurring with the AAC's decision.

Ultimately, the tribunal dismissed the appeal, upholding the AAC's ruling that taxing the sub-partnership's share income from the original firm would lead to double taxation, which was deemed unjustified.