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TMI Blog1967 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... rm both for computation of the Central income-tax and the agricultural income-tax. I was supplied with a copy of the deed of partnership of this firm. Paragraph 12 of the deed states that Bhagavandas Narayandas shall devote his whole time and attention to the business of the partnership and diligently and faithfully employ himself therein and use his best skill and endeavour to carry on the same for the utmost benefit of the partnership and shall be entitled to Rs. 1,000 per mensem as his salary with effect from April, 1957. Paragraphs 13 and 14 give directions as to how he should carry on the above work. The question arose as to how this salary of Rs. 1,000, which Bhagavandas Narayandas received under the above agreement should be computed both for the Central income-tax as well as the agricultural income-tax. The Central Income-tax Officer excluded the salary paid to him for being allowed as deduction in computing the Central income-tax, under section 10(4)(b) of the Income-tax Act, 1922, and arrived at the total income of the firm and separating 60% of it as agricultural income under rule 24 of the Central Income-tax Rules, assessed the remaining 40% to the Central income-tax. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rety as income assessable to Central income-tax at his hands and that no part of it can be viewed as his agricultural income. In Mathew Abraham v. Commissioner of Income-tax, a Bench of this court considered an identical question. In that case the assessee who was a partner claimed that out of the salary received by him for remuneration only 40% should be assessed to the Central income-tax and the remaining 60% should be left unassessed being in the nature of agricultural income under rule 24 of the Income-tax Rules. The Bench referred to the observations of the Patna High Court in E. C. Danby v. Commissioner of Income-tax : " The mere fact that this ultimate source was agricultural property will not make it agricultural income because the payment was received not as part of his profit from the agricultural property, but as remuneration due to him for work done as manager of the property." This view is supported by the decision of the Privy Council in Nawab B. Habibulla v. Commissioner of Income-tax. Applying the above principle to the case before them, the Bench held that the entire amount which the partner received under the heading of " monthly allowance and commission " w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Madhvani. But they raise a common question, namely, where a partner has advanced a loan to a registered firm, interest received by him on that loan should be viewed as containing a part that is agricultural income to be computed under rule 24 of the Income-tax Rules on the ratio of 60 to 40. Here again, relying upon section 10(4)(b) of the Income-tax Act, 1922, the Central Income-tax authority did not allow deduction for the interest paid to the partner who had advanced the loan, calculated the total income of the partnership and determined the share of each partner in that income. Thereafter, the Central Income-tax Officer added the interest in its entirety to the share which the above two partners derived from the partnership and computed the income-tax payable by them under the Central Income-tax Act. Following the same procedure as was adopted by him in the first group of cases above, which dealt with the salary of a partner, the Agricultural Income-tax Officer took a diffrent view from the Central Income-tax Officer and treated the interest received on the loan advanced by the partner, as income arising out of the tea plantation to which the 60 to 40 ratio should be appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before parting with the case, the view of the Commissioner of Agricultural Income-tax in the revision petitions appears to be that, in determining the liability to agricultural income-tax and the liability to Central income-tax arising out of the income from tea (where the statute has provided for the rule of apportionment in rule 24 of the Income-tax Rules as well as in the Explanation to section 2 of the Agricultural Income-tax Act) the appropriate revenue authorities could function in water-tight compartments, in making assessments, notwithstanding the clear link between the two assessments which is established both in rule 24 of the Income-tax Rules and in the Explanation to section 2 of the Agricultural Income-tax Act. It appears to me that if the enactments are applied by the concerned revenue authority in water-tight compartments it may lead to double taxation, and this is a contingency which should be avoided as far as possible. In this connection the observations which were made at page 351 in an earlier Bench decision reported in Kannan Devan Hills Produce Ltd. v. State of Madras may be usefully extracted : " Therefore, it may not be proper to lay down as a rule of law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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