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TMI Blog1973 (2) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... firm called " S.Rm.M.Ct.M. Firm ". That firm carried on money-lending business and also derived income from its house properties. In. respect of the years ending on April 12, 1958, April 12, 1960, and April 12, 1961, relevant for the assessment years 1958-59, 1960-61 and 1961-62, its income from various sources was determined thus by the Income-tax Officer: 1958-59 1960-61 1961-62 Income from property Rs. 29,736 Rs. 31,308 Rs. 31,706 Business Rs. 5,455 Rs. 42,315 Rs. 53,163 (loss) (profit) (profit) Foreign income Rs. 701 Rs. 18,507 Rs. 21,324 Dividend ... ... Rs. 4,640 Thereafter, the Income-tax Officer allocated the income of the firm under each head as determined above among the two partners as follows : 1958-59 1960-61 1961-62 Income from property Rs. 14,868 Rs. 15,519 Rs. 15,853 Business Rs. 2,723 Rs. 21,407 Rs. 26,581 (loss) Foreign income Rs. 350 Rs. 9,254 Rs. 10,662 Dividend ... ... Rs. 2,320 The Income-tax Officer treated the said sums of Rs. 14,8 68, Rs. 15,519 and Rs. 15,853, being the assessee's share of the firm's property income as the property income of the assessee in the respective years. This the assessee objected to on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being clarificatory and stated that, in view of that provision, the share income of the assessee in this case should be taken to have the same characteristics or nature as it had in the hands of the firm. In that view, the Tribunal dismissed the assessee's appeal. At the instance of the assessee, the following question has been referred to this court : "Whether, on the facts and in the circumstances of the case, the assessee's share income from property in the registered firm of 'S.Rm.M. Ct.M.' was income from property or profits and gains of business ? " So far as the assessee is concerned, he has all along contended that the entire share income from the firm is only a business income. The revenue, up to the stage of the Tribunal, contended that the income realized from its property by the firm retains the same character even in the hands of the assessee and that it has to be assessed in his hands only as " income from property " under section 9 of the Indian Income-tax Act, 1922. In this court, the revenue raises a further contention that, strictly speaking the share income will not fall under any of the heads of in some referred to in section 6 of that Act. We can stra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the nature of the interest of a partner in partnership property both during the subsistence of the partnership and after its dissolution with reference to the various provisions of the Partnership Act, 1932. After analysing the various provisions of that Act, their Lordships of the Supreme Court observed: "The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re income, the identity and character of the income earned by the firm are kept intact, which found acceptance before the Tribunal, cannot also be accepted. Even though the firm derived income from various sources, it cannot be said that the partner's share of income is also from those sources. In the assessment of the firm there is a pooling of income from all the sources and the total income is arrived at and the firm is assessed on such total income under section 23(5)(a)(i). Thereafter, the total income is allocated among the partners and brought in for ment in the hands of the partner. At that stage, his share income from the firm cannot be traced to the corresponding sources from which the firm had derived the income, so that it could be said that the partner has derived his income from those sources. It is to obviate this difficulty section 67(2) had been enacted in the 1961 Act. Before us, the learned counsel for the revenue puts forward a new and attractive argument. He states that though the partner's share income, which is referable to the firm's income from property, may not fall under section 9, the assessee cannot succeed unless he shows that the share income falls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduction therefrom the expenditure necessarily incurred by him for the purpose of earning that share income. In that decision Shah speaking for the court, expressed: "Where a person carried on business by himself or in partnership with others, profits and gains earned by him are income liable to be taxed under section 10 of the Indian Income-tax Act, 1922. Share in the profits of a partnership received by a partner is ' profits and gains of business ' carried on by him and is on that account liable to be computed under section 10, and it is a matter of no moment that the total profits of the partnership were computed in the manner provided by section 10 of the Income-tax Act and allowances admissible to the partnership in the computation of the profits and gains were taken into account. Income of the partnership carrying on business is computed as business income. The share of the partner in the taxable profits of the registered firms liable to be included under section 23(5)(a)(ii) in his total income is still received as income from business carried on by him." As pointed out by Chagla C. J. in Shantikumar Narottam Morarji v. Commissioner of Income-tax: " It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Muthuraman Chettiar v. Commissioner of Income-tax. In that case, the revenue contended that the share income of a partner of a firm was not " income from business " within the ambit of section 10, but was " profit from other sources " falling within section 12. The court, however, rejected that contention and held that the share income of a partner is income from business within section 10. Even here, the general principle laid down is not with reference to the source from which the firm derived the income. The decision seems to proceed on the basis that whatever be the source of income of the firm, so far as the partner is concerned, his source of income is only from business coming under section 10. This decision has been approved by the Supreme Court in Commissioner of Income-tax v. Muthuraman Chettiar. Chagla C.J. in Shantikumar Narattom Morarji v. Commissioner of Income-tax expressed his opinion thus: "........the first question that we have to consider is whether section 10 has any application to the case of an assessee who is a partner of a registered firm. Mr. Joshi's contention is that section 10 has no application at all because section 10 deals with the profits of a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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