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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 ..... rty 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 the whole of his share income from the firm should be assessed as business income and not as property income, and that his unabsorbed business losses in the earlier years should be set off against his share income from the firm. This objection was, however, rejected by the Income-tax Officer. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Commissioner also rejected the contention of the assessee that his share income from the firm is income f rom business. The view taken by the Appellate Assistant Commissioner was that income from property can never be classified as business income even in relation to a partner, as he was directly assessable in respect of his share in the firm's income. He also referred to section 67(2) of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 straightaway reject the view taken by the Tribunal that section 67(2) is clarificatory in nature and as such it will have to operate in respect of the assessment year, in question. Even if the said section 67(2) is clarificatory in nature, still it cannot have a retrospective operation. It is only where a statute is found to be declaratory, it could be said that it is intended to have a retrospective operation. Even otherwise, a reading of section 67(2) would show that the said section is neither clarificatory nor declaratory. It is a new provision inserted in the 1961 Act directing the apportionment of the partner's income under various heads of income in the same manner in which the firm's income has been determined under each head of income for purposes of assessment on the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought 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 may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges." The decision is clearly an authority for the proposition that a partner has no individual property in specific assets of the firm and has no exclusive right to possess or use partnership assets and that the right of a partner is, during the subsistence of the partnership, to get his share of the profits, and after dissolution of the partnership, to get his share in the net partnership assets on the date of the dissolution after deduction of all the liabilities and prior charges. Therefore, a partner cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 under section 10, as his object is to get a set-off for his earlier years' losses in his business and that such share income will not fall under any of the other heads of income set out in section 6 but would constitute a head sui generis. He refers to the definition of " total income " in section 2(15) and section 4 as well as section 23(5), and contends that the legislature has not purported to give any nomenclature for the share income, and even without bringing it within any of the heads of income referred to in sections 7 to 12 it has brought to charge the share income of a partner under section 23(5). Section 23(5) prescribes the manner of assessing the income of a firm and the share income of partners. Clause (ii) of sub-section (5)(a) of section 23 provides that the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 not the share as ascertained on the assessment of the firm that is liable to tax, but the share as representing the true profit of the partner. It is true that if there is a specific prohibition in the Act, the court will not permit an allowance in face of that prohibition. It is equally true that if there is an allowance permissible under the Act and the allowance deals with the whole subject-matter, the court will not permit that subject-matter to be expanded. But, where there is no prohibition and where no allowance deals with a particular subject-matter, it is open to the court to permit an allowance in order to arrive at the true profits or gains of an assessee, and therefore, if an assessee claims a deduction against the share which is included in his total income contending that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raman 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 business carried on by the assessee and according to Mr. Joshi the business in this case is not carried on by the assessee but is carried on by the assessee along with a partner or partners. Mr. Joshi says that a firm under the Indian Income-tax Act is an assessable entity and, therefore, a distinction must made between a business carried on by a firm and a business carried on by an individual ........" The learned Chief Justice also gave another reason for treating the partner's income as having been derived from business. The first proviso to section 23(5) permits the carrying forward of losses sustained by a partner in accordance with section 24. Sub-section (2) of section 24 which alone deals with a carry forward permits the carry forward and set off only for losses sustained in a business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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