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TMI Blog1968 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention of the assessee, that the share of profits received by him as partner of the firm, Erode Bleaching and Finishing Company, was not his real income, but was income which he was bound to share with other persons under an agreement therefor. The assessee is a partner of Jyothikrishnan and Company, Erode, which has two others as partners thereto. The assessee is entitled to a one-third share of the profits in this firm. The assessee is also a partner in the firm, Erode Bleaching and Finishing Company, Erode, in which there are four others as partners. Jyothikrishna and Company, hereinafter referred to as " J " firm, found the wherewithal for the Erode Bleaching and Finishing Company, hereinafter called the " B " firm, and advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 1959-60, the share income of the assessee in the " B " firm was determined at Rs. 34,470. But the assessee only showed a third of this amount in his return for the year, as his real share income in the " B " firm. The Income-tax Officer rejected the return and treated the entire amount of Rs. 34,470 as the income of the assessee. The Appellate Assistant Commissioner as well as the Tribunal were of a different view and held : " . . . what was to be considered was not the income allocated to the share of a partner in a registered firm under section 23(5)(a), but his real income, and that the real income was what remained after deducting the amounts which might be said to have been diverted and never constituted his re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. He relied upon K. A. Ramachar v. Commissioner of Income-tax . Mr.Swaminathan, however, relying upon Ratilal B. Daftari v. Commissioner of Income-tax , Poona Electric supply Co. Ltd. v. Commissioner of Income-tax Siddhi Vinayagar Co. v. Commissioner of Income-tax and Murlidhbar Himatsingka v. Commissioner of Income-tax , urged that the agreement dated August 15, 1951, is a specific pointer to the arrangement between the partners of the " J " firm, whereby the income of the assessee has sloped down in accordance with its tenor. It is not the notional income, but the real income of an assessee that has to be reckoned for purposes of taxation. He thus supports the order of the Tribunal. The answer to the question referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted by the Supreme Court, is as follows : " The principle of real income is not to be so subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. " Thus, it is by now w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm : see Commissioner of Income-tax v. A. Abdul Rahim Co. Elucidating this further the Supreme Court said in Murlidhar Himatsingka v. Commissioner of Income-tax : "Under the law of partnership it is the benamidar who would be entitled to receive the profits from the other partners but for income-tax purposes it does not mean that it is the benamidar alone who can be assessed in respect of the income received by him. " The only citation relied upon by the revenue, K. A. Ramachar v. Commissioner of Income-tax, is indeed distinguishable. On the facts it appears that the assessee therein earned the income and devised a scheme for its division. It was a case of assignment of profits by the partner for a period of time. In fact, this decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is, therefore, a scheme to earn the profits, which has to be implemented. If it is lightly brushed aside, the assessee would be subject to taxation on a notional income and not real. The genuineness of the agreement is not in dispute and in fact the revenue accepted it for a long number of years. The accidental absence of a stipulation by the " J " firm to bear the losses may not be the only criterion to hold otherwise. Judging the agreement as a whole it appears to be bona fide and not forged with any oblique purpose. We are of the view that the agreement has the effect of making an effective alienation at source of the profits by an overriding title created by it. The real income of the assessee in the " B " firm has been rightly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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