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Issues Involved:
1. Whether the entire sum of Rs. 1,34,944, being the assessee's 47.25/192 share in the registered firm of Daulat Ram Hansraj & Co., should be included in the computation of the assessee's total income or only 15/47.25 of it. Issue-Wise Detailed Analysis: 1. Inclusion of the Entire Sum in the Computation of the Assessee's Total Income: The primary issue revolves around whether the entire income of Rs. 1,34,944, attributed to the assessee's 47.25/192 share in the partnership firm Daulat Ram Hansraj & Co., should be considered as the assessee's income for tax purposes or only a portion of it (15/47.25) based on a secondary partnership deed dated 30th March 1951 (exhibit B). The original partnership deed (exhibit A) dated 1st April 1950, indicated that the assessee had a 47.25 pies share in the firm. However, the assessee presented a secondary partnership deed (exhibit B), claiming that this share was further divided among nine other individuals, making his actual share only Rs. 0-1-3 out of Rs. 0-3-11 1/4. The Income-tax Officer rejected the secondary deed as not genuine. However, the Income-tax Appellate Tribunal assumed the secondary deed to be genuine but still held that the entire income of 47.25 pies should be considered the assessee's own income. 2. Legal Precedents and Conflicting Judgments: The Tribunal's decision relied on the Calcutta High Court's ruling in Mahaliram Santhalia v. Commissioner of Income-tax, which was in conflict with the Bombay High Court's decision in Ratilal B. Daftari v. Commissioner of Income-tax. The Bombay High Court held that only the real income of the assessee, after deducting amounts diverted at the source, should be taxed. The Tribunal acknowledged the conflict between these judgments and referred the question to the High Court. 3. Diversion of Income at Source: The High Court had to start with the assumption that the secondary partnership deed (exhibit B) was genuine. This deed indicated that the share of 47.25 pies was owned by the assessee and nine other individuals. Therefore, the income derived from this share was the income of all ten individuals in specified proportions, suggesting a diversion of income at its source. The principle established by the Privy Council in Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax, and affirmed by the Supreme Court, states that only the real income of an individual, what reaches them as income, is subject to tax. This principle supports the assessee's contention that only his portion of the income (15/47.25 of Rs. 1,34,944) should be taxed. 4. Supreme Court's Decision in Commissioner of Income-tax v. Sitaldas Tirathdas: The Supreme Court's decision in Commissioner of Income-tax v. Sitaldas Tirathdas clarified the distinction between an obligation to apply one's income in a particular manner and a diversion of income at its source. The Tribunal had misinterpreted this decision, thinking it undermined the Bombay High Court's ruling in Ratilal B. Daftari. The Supreme Court held that the obligation to pay maintenance from one's income does not constitute a diversion at the source, distinguishing it from the present case where the income was shared among partners from the outset. 5. Interpretation of the Partnership Deed (Exhibit B): The High Court interpreted the secondary partnership deed (exhibit B) as indicating that the share of 47.25 pies was owned by the ten individuals mentioned in the deed. Therefore, the income from this share should be considered the income of all ten partners in the specified proportions. 6. Calcutta High Court's Decision in Mahaliram Santhalia v. Commissioner of Income-tax: The High Court found the reasoning of the Calcutta High Court in Mahaliram Santhalia v. Commissioner of Income-tax less convincing than the Bombay High Court's reasoning in Ratilal B. Daftari. The Calcutta decision implied that a partner in a registered firm could not have a sub-partnership and that the income allocated to a partner must be considered his own, even if it was not entirely his. The High Court disagreed with these implications, citing Supreme Court decisions that validated sub-partnerships and the principle that only real income is taxable. Conclusion: Based on the genuine secondary partnership deed (exhibit B), the High Court concluded that the income of Rs. 1,34,944 was not entirely the assessee's income. Only 15/47.25 of this amount should be included in the assessee's total income for tax purposes. The assessee was entitled to his costs of the reference assessed at Rs. 250.
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