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TMI Blog1999 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... Srinivasan. He has, apart from his share of income from the three different firms, other incomes also from other sources. The abovesaid common question has arisen in the context of section 182(3) of the Act, the said section runs as follows : "When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm." In the light of the abovesaid provision, the abovesaid firms were assessed to tax in the above referred to two assessment years on the respective shares of income of the said partner from the three firms ; and the abovesaid common question relates only to the rate of tax applicable on the respective shares of income from the three different firms. In other words, whether the said rate in each case is the rate applicable to the respective share of income of the said partner, or, the rate applicable to the entire "total income" of the said partner, that is, his income from all the three firms and his other incomes from other sources, computed in accordance with the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., regarding the same non-resident partner's share of income from the said firm in an earlier assessment year. No doubt in the said decision also, the same common question of law was involved in relation to section 182(3) of the Act and the said Division Bench held, on interpreting the crucial words in the said sub-section "if it were assessed on him personally", that for the purpose of ascertaining the rate of tax payable by the firm (Srinivas and Co. in the said case) in respect of the share of income of the abovesaid non-resident partner from the said firm, his share income alone should be considered and his "total income" should not be considered. But, with respect, we are unable to agree with the view taken by the said Division Bench in the said decision in interpreting section 182(3). We are, therefore, of the view that the matter has to be dealt with by a Full Bench. We give below our reasons. In our view, a plain reading of the abovesaid provision, section 182(3), would lead to the conclusion that the abovesaid share of income of the partner should be subjected to tax, only at the rates applicable to the "total income" of the partner and not at the rate applicable to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on him in relation to his other incomes. On the other hand, the fact that it should have intended otherwise, viz., not to effect any such change, is made clear by using the abovesaid expression "if it were assessed on him personally". Now, adverting to the reasoning of the abovesaid Division Bench in CIT v. Srinivas and Co. [1996] 219 ITR 636 (Mad), we find that the said Division Bench, for coming to the conclusion it reached, relied on Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad). But, with respect, we state that this reasoning while placing reliance on Gnanam and Sons v. CIT [1961] 43 ITR 485, is not correct and requires reconsideration for the following reasons: Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad) arose under the Indian Income-tax Act, 1922. There, the Income-tax Officer assessed to income-tax a registered firm under the second proviso to section 23(5)(a) of the Indian Income-tax Act, 1922, in regard to the share of a non-resident partner for the profits of his firm, calculating the tax payable by applying section 17 of the said Act at the maximum rate. It was held in that context by the above referred to Division Bench that the assessment was properly made on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above situation, since the rate applicable to the non-resident partner if his share were assessed on him personally, was the maximum rate that was laid down in the abovesaid section 17, that itself was adopted in making the assessment on the firm in respect of the said share. Thus, in the light of the above referred to provisions of the old Act, the above referred to decision was rendered in Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad). But, it cannot be said that the said Division Bench which decided in Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad), gave any different meaning to the term "if it were assessed on him personally" appearing in the second proviso to section 23(5) of the 1922 Act. In fact, it should be stated that Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad), actually supports the abovesaid view taken by us. On the facts in Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad), as already stated, only the abovesaid maximum rate of tax was applicable to the partner not resident in the taxable territory, on his total income. Accordingly, the said maximum rate alone was applied even on the above said share of income. In the present case also, in the light of the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case also, the average rate applicable on the said partner's total income should necessarily be applied while assessing the firm in respect of the said share income. It must also be mentioned that though there are two assessments in relation to the non-resident partner, one, on his firm in relation to his share of income from the firm, and another, on himself in relation to his other sources of income comprised in his total income, both the assessments must be done as if there were one assessment on the partner himself directly on his entire "total income". Here, it must also be pointed out that the fundamental principle is that the income-tax is only one tax levied on the sum total of the income and not a collection of distinct taxes levied separately on each head or item of income (vide United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) and Re Kamdar's case [1946] 14 ITR 10, 41 (Bom)). The net result is, in our view, in CIT v. Srinivas and Co. [1996] 219 ITR 636 (Mad) Gnanam and Sons v. CIT [1961] 43 ITR 485 (Mad) has been applied wrongly. Further, one other observation in CIT v. Srinivas and Co. [1996] 219 ITR 636 (Mad) at pages 640 and 642 is as follows : "The sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier decision of this court in the case of CIT v. Srinivas and Co. [1996] 219 ITR 636, requires reconsideration by a Full Bench of this court. The facts are not in dispute. In all the tax cases, the assessees are firms and in the three firms, one of the partners in the assessee firms was a non-resident and apart from the share income from the three firms, the said non-resident partner had other income also from other sources. The firms were assessed to tax for the two assessment years in question on the share income of the partner in the three firms under the provisions of section 182(3) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act 1961"), and the said sub-section reads as under : "When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm ?" The question that arises is whether it is only the respective share income of the non-resident partner in the three firms that should be taken into account for the purpose of determination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubramaniam, learned senior counsel appearing for the Department, submitted that under the provisions of section 182(3) of the Act of 1961, the entire total income of a non-resident should be taken into account. He laid emphasis on the words found in section 182(3) of the Act of 1961, viz., "if it were assessed on him personally" and submitted that under relevant provisions of the Indian Income-tax Act, 1922 (hereinafter to be referred to as "the Act of 1922"), and also under the Act of 1961, though initially for some years, the maximum rate of tax was applied on the share income derived by the non-resident partner from a firm, the system underwent some change and at present, during the relevant assessment years, the rate of tax is determined on the total income at a progressive rate, and if the partner's share income alone is assessed to tax in the hands of a partnership firm, it may not result in a proper assessment of the share income as the tax would be assessed at a lower rate than the proper rate that would be applicable if the partner's total income is assessed and, therefore, he submitted that in the case of a non-resident partner, his entire total income would be taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entire total income in the hands of the firm. If the intention of the Legislature was otherwise, then, the Legislature would have used a different expression. The object of section 182(3) of the Act of 1961, is to levy and collect tax on the share income derived by a non-resident partner from the firm and it is not expected that the Income-tax Officer assessing the firm should wait indefinitely for the completion of the individual assessment of the non-resident partner before he levies tax on the firm and collects the same from the firm. If the Income-tax Officer is expected to wait for the completion of the partner's assessment, it will create another problem for him as the share income of the non-resident would already have been assessed in his individual assessment and there is no need to resort to the provisions of section 182(3) of the Act of 1961, and proceed against the firm. Section 182(3) of the Act of 1961, empowers the Income-tax Officer, without waiting for the completion of the individual assessment of a non-resident partner, to levy tax on the share income derived by the non-resident partner from the firm in the hands of the firm itself and at the time of completio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only his share income from the firm that is made liable for assessment, and the sum so determined as payable is made payable by the firm. The above decision of this court in Gnanam and Sons' case [1961] 43 ITR 485 was approved by the Supreme Court in the case of RM. Ramanathan Chettiar v. CIT [1970] 78 ITR 10 and the Supreme Court has held that a non-resident partner of a registered firm is not entitled to exclude from his share income from the firm determined under section 23(5) of the Act of 1922, i.e., income accruing or arising to the firm without the taxable territories by the operation of section 4(1)(c) of the Act of 1922. In our opinion, the underlying principle laid down by the Supreme Court in RM. Ramanathan Chettiar's case [1970] 78 ITR 10 and by this court in Gnanam and Sons' case [1961] 43 ITR 485, is that the share income of a non-resident partner in a registered firm is alone the subject-matter of consideration in making the assessment of his share income on the firm under the provisions of the Act and it is not open to the partner to exclude from the share income any other income on the ground that it is exempt or not taxable in view of some other provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on the interpretation of section 23(5)(a) of the Act of 1922, there is no scope for exclusion from the share income of any amount and the said interpretation of section 23(5)(a) of the Act of 1922, was independent of and de hors the applicability of the maximum rate of tax on the share income. Therefore, the mere fact that the share income of a non-resident partner is now assessed at a progressive rate does not warrant any different interpretation to be placed on the provisions contained in section 182(3) of the Act of 1961. Further, the decision of the Privy Council was followed by this court in Gnanam and Sons' case [1961] 43 ITR 485 and also by the Supreme Court, and the law laid down by the Privy Council has been holding the field for more than five decades and we are of the opinion that there is no warrant or no need to upset the settled law well settled by the Privy Council, the Supreme Court and also by this court. In our opinion, the principles laid down by those decisions would equally apply to the interpretation of the provisions contained in section 182(3) of the Act of 1961, as well, and the provisions of section 182(3) of the Act of 1961, are not in any way differe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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