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TMI Blog1980 (4) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ources " and treated it as unearned income. The assessee's appeal before the AAC came to be dismissed and the matter was taken to the Tribunal. The Tribunal held that the income received by way of dividend on the shares held by the assessee as stock-in-trade was earned income, though assessable as income from other sources. On these facts, the question reproduced above has been referred. On behalf of the assessee, it was contended by Mr. Dastur that though the definition of " earned income " in s. 2(7)(iii)(c) of the Finance (No. 2) Act, 1962 (hereinafter referred to as " the Finance Act "), requires that the source or the right which gives rise to the income in question has to be determined in so far as dividend income is concerned, the business activity of the assessee which consists of purchasing and selling of shares was also the activity which gives rise to dividend income. The learned counsel contended that receipt of dividend is an integral part of the business activity. We may point out that when we heard Income-tax Reference No. 48 of 1971 (CIT v. D. G. Goenka-[1981] 129 ITR 260) we found that similar point was involved in the present reference in which Mr. Dastur appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. (h) after the word " or " has to be read as an independent clause. The contention appears to be that in the case of a firm where the assessee is a partner actively engaged in the conduct of the business, the entire share income of the partner has to be treated as earned income. On a bare reading of cl. (b), such a construction is difficult to be accepted. The scheme of cls. (a), (b) and (c) is very clear. Each one of them refers to a head of income. Clause (a) refers to the head " Salaries "; cl. (b) refers to the head Profits and gains of business or profession " and cl. (c) refers to the head Income from other sources ". The entire cl. (b), if properly read, would show that the words " which is chargeable under the head 'Profits and gains of business or profession " govern the latter part of that clause " in the case of a firm where the assessee is a partner actively engaged in the conduct of business or profession ". Therefore, cl. (b) will be attracted in the case of an assessee who is a partner of a firm and the assessee is actively engaged in the conduct of the business or profession. In such a case alone, in the case of a firm, the profits and gains of business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm has to be apportioned under the same head under which it has been determined as the income of the partnership firm. It is obvious that because the Division Bench took the view in Narandas' case [1978] 115 ITR 587 (Bom) that the share income of the partner is business income, and, consequently, in so far as the definition of earned income is concerned it would then fall in cl. (b) of s. 2(6AA) and not in cl. (c) of s. 2(6AA), the assessee was held entitled to the earned income relief. The position under the 1961 Act is now radically changed by the enactment of s. 67(2) of the Act. In view of the provisions of s. 67(2) of the Act, the assessee's case will have to be decided with reference to cl. (c) in the definition of "earned income " and not with reference to clause (b) which was relevant in Narandas' case [1978] 115 ITR 587. There was, therefore, no question of our decision in this case being in conflict with the decision in Narandas' case. Mr. Dastur has referred us to a decision of the Privy Council in Australian Mutual Provident Society v. IRC [1962] AC 135. That was a case of a Mutual insurance society incorporated in Australia and also carrying on the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities themselves were kept in New Zealand, but there was no evidence to show whether or not the investments had been purchased out of money earned in New Zealand. The Privy Council then observed that (p. 152): " On these facts their Lordships do not think it can be said that the income from the shares was income derived from the life insurance business which the appellants carried on in New Zealand." Stress was laid on these observations by the learned counsel for the assessee and it was contended that these observations must be read as meaning that the amount received as dividend was income derived from life insurance business. It is not possible for us to read these observations in the manner contended for by the learned counsel for the assessee. The question as to whether the dividend was to be treated as income derived from life insurance business was not debated before nor decided by the Privy Council and the real question which arose was whether the money out of which the investments were purchased was earned in New Zealand. This decision, therefore, is not of any assistance to us. Mr. Dastur then relied upon a decision of the Court of Appeal in White (Inspector of Taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrues to him in virtue of his office ". The Court of Appeal also referred to the test laid down by that court in Hochstrasser v. Mayes [1958] 3 WLR 215 (CA) and by the House of Lords in the same case in appeal reported in [1960] AC 376 and the test was " whether the fact of the employment was the causa causans of the payment as opposed to a mere sine qua non" ([1965] 1 WLR 492, 512 (CA)). Applying this test, the Court of Appeal observed thus (p. 514): " ...on the facts recited in the case stated, there was ample evidence to justify the conclusion of the commissioners that the character of the income received in this case was such as to constitute it remuneration from the taxpayer's office or employment with the company, so as to come within the definition of earned income." It is apparent that the requirements of cl. (a) of s. 525(1) of the English Income Tax Act, 1952, were materially different from the provisions of s. 2(7)(iii)(c) of the Finance (No. 2) Act, 1962, with which we are concerned. What Mr. Dastur, however contended was that when the Court of Appeal referred to the test " whether the fact of the employment was the causa causans of the payment ", a similar test s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it was money receivable under a contract for sale with a purchaser, and was not, for example, money receivable under a contract for hairdressing with a customer." It is difficult to see what assistance the assessee can derive from this decision. Whether income which is sought to be classified as earned income falls in that classification has to be determined on the facts and circumstances of each case in the light of the relevant statutory provision and unless on facts it is possible to reach a conclusion that a particular income is immediately derived from personal exertion of the assessee, that income cannot be classified as earned income. All that can be said about the decision relied upon is that, in that case, the capital gain was held to have been directly derived from the hair dressing business carried on by the assessee's wife. There is nothing in that decision which can be of assistance to the assessee. We may also point out that the test laid down by the Privy Council in Kamakhya Narayan Singh's case [1948] 16 ITR 325 (PC) has been referred to with approval by the Supreme Court in CIT v. Kunwar Trivikram Narain Singh [1965] 57 ITR 29. Having regard to the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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