9911796707
TMI Blog1995 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of persons was two-thirds. The association of persons was assessed separately. In her assessment for the assessment year 1975-76, the assessee claimed that her share in the profits of the association of persons was not includible in her individual assessment. In the alternative it was claimed that if at all the assessee's share was includible in her income for the rate purposes, it would be her share in the profits of association of persons arrived at after deduction of the income-tax payable thereon. The Income-tax Officer did not accept either of these contentions of the assessee. He rejected the first contention relying on the provisions of section 66 of the Income-tax Act, 1961, which provides for inclusion of the share of the assessee in the income of the association of persons on which no tax is payable, in the total income of the assessee for rate purposes. The second contention of the assessee was rejected by the Income-tax Officer on the ground that there was no provision in the Act to take the share after deduction of the tax paid by the association of persons from the share of the assessee in the income thereof and in that view of the matter, added her entire share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons, such amount is includible in the total income of the assessee and the assessee is allowed a deduction at the average rate in respect of such exempted income. It was contended that the income-tax paid by the association of persons cannot be deducted in computing such amount. Our attention was drawn in this connection to section 67 of the Act which provides for deduction of the share of the amount of tax paid by a registered firm from the share of income received by the assessee from such firm. It was contended that it is abundantly clear from the above provision that wherever the Legislature intended to exclude the share of income-tax paid on the income, it has specifically provided for the same. According to learned counsel for the Revenue, in the absence of any such provision the amount receivable from the association of persons would mean the amount receivable out of the income of the association of persons arrived at before payment of tax. According to counsel, the expression "on which tax has already been paid" is in fact intended to restrict the exemption to only such portion of the amount on which "income-tax has already been paid" and for no other purpose. Mr. Soli D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already been paid thereon by the association of persons. Obviously, what is exempt from income-tax is the portion of the amount which the assessee is entitled to receive from the association of persons as its member. It is not the amount reduced by the amount of income-tax paid thereon by the association of persons. Payment of income-tax on such amount by the association of persons, in fact, is a condition precedent on fulfilment of which the amount received by the member would be exempt from income-tax. It is pertinent in this connection to note that under section 86(v) of the Act, exemption of the amount receivable by a member from the association of persons is dependant on the actual payment of income-tax by the association of persons unlike section 86(iii) of the Act where the exemption has been made available to a partner of an unregistered firm in respect of the portion of his share in the profits and gains of the firm "on which income-tax is payable by the firm". The distinction in the language of the two clauses is significant. Obviously, the Legislature intended to extend the benefit to partners of unregistered firms in respect of the portion of their share in the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted income) which has the effect of enhancing the average rate of income-tax applicable to the taxable income. In this process the income-tax computed on the total income at the specified rates would also include income-tax on the exempted income. It is for this reason that section 110 of the Act provides for grant of deduction from the amount of income-tax so calculated, of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax is payable. The contention of Mr. Dastur for the assessee which also found support from the Tribunal, is that the amount which the assessee is entitled to receive from the association of persons means the amount which he is entitled to receive reduced by the amount of tax paid by the association of persons in respect thereof. In other words, according to learned counsel, in determining the amount receivable by the assessee from the association of persons as his share, the income-tax paid by the association of persons on such amount has to be deducted from the total income of the association of persons. Dr. Balasubramaniam, learned counsel appearing for the Revenue, vehemently opposes the above i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association of persons on the portion of the amount which he is entitled to receive from the association of persons. This exemption is conditional on payment of income-tax by the association of persons on such income. If no income-tax has already been paid by the association of persons thereon, section 86(v) will not apply and the member of such association of persons would not be entitled to any exemption in respect of the amount receivable by him as a member thereof. We are, however, of the firm opinion that the "amount" referred to in section 86(v), in any event, would be the amount receivable by the member of the association of persons out of its income without deduction of the income-tax paid by the association of persons thereon. In the light of the above discussion, we are of the clear opinion that the Tribunal was not correct in law in holding that the share of income from the association of persons includible in the assessee's hands as a member thereof has to be determined after deducting from the association of persons income the amount of income-tax already paid thereon. Accordingly, we answer the question referred to us in the negative and in favour of the Revenue. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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