Full Judgment Text
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PETITIONER:
FATEHCHAND MURLIDHAR AND ANR.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, CALCUTTA
DATE OF JUDGMENT:
19/07/1966
BENCH:
ACT:
Income-tax Act (11 of 1922), s. 23(5)(a)-Scope of-
Partnership Sub-partnership between a partner and strangers-
Agreement to share profits and losses of partner in the
Partnership--Income from the Partnership-Whether belongs to
partner or sub-partnership.
HEADNOTE:
The assessee was a partner in a registered firm. In 1949 he
entered into a partnership with persons who were strangers
to the registered firm and a deed of partnership was
executed between them. It recited that the profits and
losses for the share of the assessee in the registered firm
should belong to the new firm and be divided and borne by
the partners of the new firm in accordance with the shares
specified in the deed.
On the question whether the income of the assessee from the
registered firm for the years 1952-53, 1953-54 and 1955-56,
should be included in his individual assessment,
HELD:-The income should be included in the assessment of
the new firm and not in the personal assessment of the
assessee,
(i)The new partnership constituted a sub-partnership in
respect of the assessee’s share in the registered firm. (In
the case of a subpartnership, it creates a superior title
and diverts the income before it becomes the income of the
partner, that is, the partner in the main firm receives the
income not only on his own behalf but on behalf of the
partners in the sub-partnership,. The fact that a sub-
partner can have no direct claim to the profits vis-a-vis
the other partners of the main firm and that it is the
partner alone who is entitled to the profits vis-a-vis the
other partners in the main firm, does not show that the
changed character of the partner should not be taken into
consideration for income-tax purposes. [461E-F; 462C]
(ii)The object of s. 23(5)(a) is not to assess the firm
itself but to apportion the income among the various
partners. After the income has been apportioned, the
Income-tax Officer has to find whether it is the partner who
is assessable or whether the income should be taken to be
the real income of some other person. If it is the real
income of another firm, it is that firm which is liable to
be assessed under the section. There is nothing in the
section that prevents the income of the assessee from the
registered firm being treated as the income of the sub-
partnership and the section being applied again. [463C, F]
Charandas Haridas v. Commissioner of Income Tax, [1960] 3
S.C.R. 296, and Commissioner of Income Tax, Bombay v.
Sitaldas Tirathdas [1961] 3 S.C.R. 634, followed.
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Commissioner of Income Tax, Punjab v. Laxmi Trading Co. 24
I.T.R. 173 and Ratilal B. Daftari v. Commissioner of Income
Tax:-, Bombay, 36 I.T.R. 18, referred to.
Mahaliram Santhalia v. Commissioner of Income Tax 33 I.T.R.
261, overruled.
454
JUDGMENT:
CIVIL APPELLATE JURISDICTION:- Civil Appeal Nos. 1108 to
1110 of 1964.
Appeals by special leave from the judgment and order dated
August 1, 1962 of the Calcutta High Court in Income-tax
Reference Nos. 20 and 21 of 1959.
A.K. Sen, S. C. Mazumdar and J. Datta Gupta, for the
appellants.
R.M. Hazarnavis, R. Ganapathy Iyer and R. N. Sachthey,
for the respondent.
The Judgment of the Court was delivered by
Sikri, J. These appeals by special leave are directed
against the judgment of the High Court of Calcutta in two
cases referred to it by the Income Tax Appellate Tribunal,
Calcutta Bench, under s. 66(1) of the Indian Income-tax Act
(XI of 1922) hereinafter called the Act). One of the
references (Income Tax Reference No. 20 of 1959) was made at
the instance of M/s Fatehchand Murlidhar, and the other
(Income Tax Reference No. 21 of 1959) was made at the
instance of Shri Murlidhar Himatsingka. In the former
reference the question referred was "whether on the facts
and in the circumstances of the case, the income of
Murlidhar Himatsingka for his share in the firm of Messrs.
Basantlal Ghanshyamdas for the assessment years 1952-53 and
1953-54 was rightly excluded from the income of the
applicant firm". In the latter reference the question
referred was "whether on the facts and circumstances of the
case the income of Murlidhar Himatsingha for his share in
the firm of Messrs. Basantlal Ghanshyamdas for the
assessment year 1955-56 was rightly included in his personal
assessment for that year".
The facts and circumstances out of which these references
were made are common because the real question raised by
these references is whether the income of Murlidhar
Himatsingka, from the firm of M/s Basantlal Ghanshyamdas, in
which he was a partner, should be included in his personal
assessment or in the assessment of the firm of Fatehchand
Murlidhar, to which Murlidhar Himatsingka had purported to
assign the profits and losses from M/s Basantlal
Ghanshyamdas. It is sufficient to take the facts from the
statement of the case in Income Tax Reference No. 21 of
1959, made at the instance of Murlidhar Himatsingka. Murli-
dhar Himatsingka was carrying on business in shellac, jute,
hessian etc. under the name and style of "Fatehchand
Murlidhar" at 14/ 1, Clive Row and 71, Burtolla Street,
Calcutta. He was also a partner in the registered firm,
Messrs Basantlal Ghanshyamdas having /2/8 share. On
December 21, 1949, a deed of partnership was executed by the
said Murlidhar Himatsingka and his two sons, Madanlal
Himatsingka and Radhaballav Himatsingka and a grandson named
Mahabir Prasad Himatsingka. The deed recited that Murlidhar
Himatsingka had become too old and infirm
455
to look after the various businesses and that Madanlal and
Radha Ballav were already practically managing the business
and that they had signified their intention to become the
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partners of the said firm "Fatehchand Murlidhar" and had
agreed to contribute capital, Rupees ten thousand, Rupees
five thousand and Rupees five thousand respectively. The
parties further agreed to become and be partners in the
business mentioned in the deed. Clause 5 of this deed is
important for our purpose and reads as follows:-
"The profits and losses for the share of the
said Murlidhar Himatsingka as partner in the
said partnership firm of Basantlal
Ghanshyamdas shall belong to the present
partnership and shall be divided and borne by
the parties hereto in accordance with the
shares as specified hereafter, but the capital
with its assets and liabilities will belong
exclusively to Murlidhar Himatsingka the party
hereto of the First Part and the Parties
hereto of the Second, Third and Fourth parts
shall have no lien or claim upon the said
share capital or assets of the party hereto of
the first part in the business of the said
Messrs Basantlal Ghanshyamdas".
Clause 10 provides:-
"The Profits and losses (if any) of the
partnership including the shares of the
profits and losses of the said partnership
firm of Basantlal Ghanshyamdas aforesaid shall
be divided and borne by and between the
parties in the following manner:--
Party hereto of the First Part-Six annas
(Murlidhar Himatsingka).
Party hereto of the Second Part-Four annas
(Madanlal Himatsingka).
Party hereto of the Third Part-Three annas
(Radhaballav Himatsingka).
Party hereto of the Fourth Part-Three annas
(Mahabirprasad Himatsingka).
Clause 11 provides that "all partnership moneys and
securities for money shall as and when received be paid into
and deposited to the credit of the partnership account". In
clause 13 it is provided that "the party hereto of the First
Part shall have the sole control and direction of the
partnership business and his opinion shall prevail if there
be any dispute between the parties hereto". Clause 16
provides that "the net profits of the partnership after
payment of all outgoings interest on capital or loans and
subject to the creation and maintenance of any reserve or
other fund shall belong to the parties and the losses, if
any, shall also be borne and paid by the parties in
proportion to their shares as stated in Clause 10 hereof".
For the assessment year 1955-56 the Income Tax Officer
included the income-from the share in the registered firm of
456
Basantlal Ghanshyamdas in the individual assessment of
Murlidhar Himatsingka, Murlidhar Himatsingka appealed to the
Appellate Assistant Commissioner. Referring to s. 23(5)(a)
of the Act. he held that as Murlidhar Himatsingka was a
partner in the registered firm of Basantlal Ghanshyamdas,
his share had to be assessed in his hands. He further held
that the agreement was merely an arrangement which came into
force after the profits were earned and not before they were
earned. He held that this agreement being a subsequent
disposition of profits, after they had been earned, had to
be disregarded.
Murlidhar Himatsingka appealed to the Income Tax Appellate
Tribunal. The Appellate Tribunal heard this appeal together
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with the two appeals filed by M/s Fatehchand Murlidhar. The
Appellate Tribunal, agreeing with the views of the Appellate
Assistant Commissioner, dismissed the appeal.
The High Court held that it was a case of diversion of in-
come by Murlidhar Himatsingka after it had accrued to him
and it was not a diversion at the source by any overriding
interest. In the result, the High Court answered the
questions in the affirmative in both the references.
Murlidhar Himatsingka and M/s Fatehchand Murlidhar having
obtained special leave, the appeals are now before us.
The learned counsel for the appellants, Mr. A. K. Sen, con-
tends that a partner’s share is property capable of being
assigned, mortgaged, charged and dealt with as any other
property, and where a partner sells his share to a stranger,
though that stranger does not become a partner yet the
vendor partner holds the property as trustee for the
purchaser and consequently the income received by the
partner is not his income but the income of the purchaser.
He says that similarly if a partner assigns part of his
share the same result follows. He further contends that in
this case, by the agreement dated December 21, 1949,
Murlidhar Himatsingka had entered into a sub-partnership
with his two sons and a grandson in respect of his share in
the firm Basantlal Ghanshyamdas, and it is the sub-
partnership that is entitled to the income from the firm
Basantlal Ghanshyamdas and not Murlidhar Himatsingka who
must be taken to be acting on behalf of the firm Fatehchand
Murlidhar. Mr. Sen further urges that the Indian Income Tax
Act taxes real income and not notional income and the real
income in this case belonged not to Murlidhar but to M/s
Fatehchand Murlidhar.
Mr. Hazarnavis, on the other hand, contends that this agree-
ment is a mere device for dividing income which had accrued
to Murlidhar Himatsingka among his sons and grandson. In
the alternative he contends that the Indian Income Tax Act
does not contemplate the application of s. 23(5)(a) twice.
He says that the firm of Basantlal Ghanshyamdas was a
registered firm and the
457
Income Tax Officer was bound. under s. 23(5)(a), to assess
Murlidhar in respect of the income received from this firm-,
he could not carry this income to the assessment of another
registered firm, namely, Fatehchand Murlidhar, and then
apply s. 23(5)(a).
The first point that arises is whether the agreement dated
December 21, 1949, has succeeded in diverting the income
from Murlidhu’s share in M/s Basantlal Ghanshyamdas to M/s
Fatehchand Murlidhar before it reached Murlidhar. What is
the effect of the agreement? In our opinion the agreement
dated December 21, 1949, constituted a sub-partnership in
respect of Murlidhar’s share in M/s Basantlal Ghanshyamdas.
The High Court in this connection observed:-
"At best it could be called a sub-partnership entered into
by Murlidhar with strangers in respect of his share of the
partnership".
In arriving at this conclusion we attach importance to the
fact that losses were also to be shared and the right to
receive profits and pay losses became an asset of the firm,
Fatehchand Murlidhar.
In Commissioner of lncome-tax, Bombay v. Sitaldas Tirath.
das,(1) Hidayatullah, J., speaking for the Court, laid down
the following test for determining questions like the one
posed above. After reviewing a number of authorities, he
observed:-
"In our opinion, the true test is whether the
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amount sought to be deducted, in truth, never
reached the assessee as his income.
Obligations, no doubt, there are in every
case, but it is the nature of the obligation
which is the decisive fact. There is a
difference between an amount which a person is
obliged to apply out of his income
and an
amount which by the nature of the obligation
cannot be said to be a part of the income of
the assessee. Where by the obligation income
is diverted before it reaches the assessee, it
is deductible; but where the income is
required to be applied to discharge an
obligation after such income reaches the
assessee, the same consequence, in law, does
not follow. It is the first kind of payment
which can truly be excused and not the second.
The second payment is merely an obligation to
pay another a portion of one’s own income,
which has been received and is since applied.
The first is a case in which the income never
reaches the assessee, who even if he were to
collect it, does so, not as part of his income
but for and on behalf of the person to whom it
is payable’.
458
This test clearly shows that it is not every obligation to
apply income in a particular way that results in the
diversion of income before it reaches the assessee. In its
judgment in the above case (Sitaldas Tirathdas v.
Commissioner of Income-tax, Bombay(1) the High Court of
Bombay had observed:--
"It is not essential that there should be a
charge, it is quite sufficient if there is a
legally enforceable claim".
These observations must be treated as unsound. The test
laid down by this Court is quite clear, though like some
other tests it is not easy of application in all cases.
The other cases cited before us, namely, K. A. Ramachar v.
Commissioner of Income-tax, Madras(1) and Provat Kumar
Mitter v. Commissioner of Income-tax, West Bengal(1) do not
assist us in disposing of this case because the facts are
not similar. Only two cases, one of the Bombay High Court
and the other of the Calcutta High Court, have close
resemblance to the facts of this case and we may now
consider them. In Ratilal B. Daftri v. Commissioner of
Income-tax, Bombay(1) the assessee who was one of the
sixteen partners in a registered partnership had contributed
Rs. 25,000/- out of the capital of the partnership, Rs.
3,45,000/-. In order to contribute this capital of Rs.
25,000/- he had entered into an agreement with four others
on the same date on which the registered partnership deed
was executed, which provided for contribution of diverse
sums by the four others and it was further provided in this
agreement that the five parties would share the profits and
losses in proportion to their individual contribution. It
was also mentioned that the terms and conditions mentioned
in the registered partnership were to be applicable and
binding on them. The Bombay High Court held that the
assessee was liable to be assessed only in respect of his
share of the profits of the registered partnership. In
coming to this conclusion, the High Court relied on two
other decisions of the same Court, namely, Motilal
Manekchand v. Commissioner of Income-tax(1) and Sitaldas
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Tirathdas v. Commissioner of Income-tax(1) As pointed out by
the learned counsel for the respondent, Mr. Hazarnavis,
Sitaldas Tirathdas v. Commissioner of Income-tax(1) was
reversed by this Court in Commissioner of Income-tax v.
Sitaldas Tirathdas(4) Hidayatullah, J., at p. 374 of his
judgment reversing the judgment of the Bombay High Court,
had also referred to Motilal Manekchand v. Commissioner of
Income-tax (5) but did not expressly dissent from this case.
In our opinion the case of Ratilal B. Daftari v. Commis-
sioner of Income-tax, Bombay(1) was rightly decided,
although the reasoning given by the learned Judges of the
High Court has to some extent not been accepted by
Hidayatullah, J., in Commissioner of Income-tax v. Sitaldas
Tirathdas(3). We say so far the follow.
(1) 33 I.T.R. 390,394.
(2) 42 I.T.R. 25.
(3) 41 I.T.R. 624,
(4) 36 I.T.B. Is.
(5) 31 T.T.R. 735.
(6) 41 I.T.R. 367. [1961] 3 S.C.R. 634.
459
ing reasons. Lindley on Partnership, 12th Edition, page 99,
deals with sub-partnerships as follows:--
"A sub-partnership is, as it were, a
partnership within a partnership, it
presupposes the existence of a partnership to
which it is itself subordinate. An agreement
to share profits only constitutes a
partnership between the parties to the
agreement. If, therefore, several persons are
partners and one of them agrees to share the
profits derived by him with a stranger, this
agreement does not make the stranger a partner
in the original firm. The result of
such an
agreement is to constitute what is called a
sub-partnership, that is to say, it makes the
parties to it partners inter se; but it in no
way affects the other members of the principal
firm".
He further states:--
"Since the decision of the House of Lords in
Cox v. Hickman (1860) 8 H.L. Cas. 268, a
sub-partner could not before the Partnership
Act, 1890, be held liable to the creditors of
the principal firm by reason only of his
participation in the profits thereof, and
there is nothing in that Act to alter the law
in this respect".
Sub-partnerships have been recognised in India and
registration accorded to them under the Indian Income Tax
Act. (See Commissioner of Income-tax, Punjab v. Laxmi
Trading Company)(1)
The question then arises is whether the interest of the sub-
partnership in the profits received from the main
partnernship is of such a nature as diverts the income from
the original partner to the sub-partnership. Suppose that A
is carrying on a business as a sole proprietor and he takes
another person B as a partner. There is no doubt that the
income derived by A after the date of the partnership cannot
be treated as his income; it must be treated as the income
of the partnership consisting of A and B. What difference
does it make in principle where A is not carrying on a
business as a sole proprietor but as one of the partners in
a firm? There is no doubt that there is this difference
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that the partners of the sub-partnership do not become
partners of the original partnership. This is because the
Law of Partnership does not permit a partner, unless there
is an agreement to the contrary, to bring strangers into the
firm as partners. But as far as the partner himself is
concerned, after the deed of agreement of subpartnership, he
cannot treat the income as his own. Prior to the case of
Cox v. Hickman(1), sub-partners were even liable to the
creditors of the original partnership. Be that as it may,
and whether he is treated as an assignee within, s. 29 of
the Indian Partnership Act, as some cases do, a sub-partner
has definite enforceable rights to claim a share in the
profits accrued to or received by the partner.
(1)24 I.T.B. 173.
(2) [1860] 8 H.L. Cas. 268.
460
The decision of this Court in Charandas Haridas v.
Commissioner of Income-tax (1) seems to support, at least by
inference, this conclusion. In that case the facts were as
follows. Charandas Haridas was the karta of a Hindu
undivided family consisting of his wife, his three minor
sons and himself. He was a partner in six managing agency
firms and the share of the managing agency commission
received by him as such partner was being assessed as the
income of the family. By a memorandum executed by the co-
parceners of the family a partial portion of the income from
the managing agency was brought about.
The memorandum stated:-
"We have decided that......... in respect of
the commission which accrues from 1st January,
1946 and received after that date each of us
becomes absolute owner of his one-fifth share
and therefore from that date...... these
commissions cease to be the joint property of
our family’.
This Court held that the document effectively divided the
income and the income could no longer be treated as that of
the Hindu undivided family. This case shows that although
the karta continued to be a partner in the managing agency
firm, yet the character in which he received the income vis-
a-vis the Hindu undivided family had changed and the Court
gave effect to the change of his position. Previously he
was acting as a karta on behalf of the Hindu undivided
family in the managing agency firm-, later he became a
partner on behalf of the members of the family. It seems to
us that when a sub-partnership is entered into the partner
changes his character vis-a-vis the sub-partners and the
Income Tax authorities, although other partners in the
original partner. ship are not affected by the changes that
may have taken place.
In our view the Calcutta High Court decision relied on by
the High Court and the learned counsel for the respondent
(Mahaliram Santhalia v. Commissioner of Income-tax(1) was
wrongly decided. The facts in that case were these. Mahal’
Santhalia was a partner in the firm M/s Benares Steel
Rolling Nills. He was also a partner in another firm named
M/s Radhakissen Santhalia. By agreement dated April 3,
1944, between the partners of M/s Radhakissen Santhalia, it
was provided that the partnership income from M/s Benares
Steel Rolling Mills would belong not to Mahaliram Santhalia
individually but to the firm of M/s Radhakissen Santhalia.
The High Court of Calcutta held that the agreement amounted
only to voluntary disposition by Mahaliram Santhalia of his
income and there was no diversion of income to the firm M/s
Radhakissen Santhalia before it became
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(1) [1960] 3 S.C.R. 296.
(2) 33 I.T.& 261.
461
Mahaliram Santhalia’s income. The High Court observed at p.
272:-
"If. as Mr. Mitra conceded, Mahaliram was
rightly taken as a partner of the Benares
Steel Rolling Mills in personal capacity and
if a one-fourth share of the income was
rightly allocated to him, any agreement bet-
ween him and his three partners of the firm of
Radhakissen Santhalia, under which the income
was to be treated as the income of the whole
firm, could only be an agreement by which
Mahaliram Santhalia was allowing what was
really his income to be treated as the income
of the firm or, in other words, as agreement
by which he was applying or distributing an
income which he had already himself earned and
received. Such application ,or distribution
would be a voluntary act of Mahaliram
Santhalia in respect of a sum which it was
conceded, had rightly been included in his own
total, income and, therefore was his own
income. If the moment the share of the income
from the Benares Steel Rolling Miffs was
allocated to Mahaliram Santhalia, it became
his income and liable to be included in his
own total income for the purpose of his
personal assessment, an agreement by him with
other persons regarding the rights to that
income could only be a voluntary disposition
of his income by him. No question of a
diversion by superior tide could possibly
arise."
With respect, we are unable to agree with most of this
reasoning. In our view, in the case of a sub-partnership
the sub-partnership creates a superior title and diverts the
income before it becomes the income of the partner. In
other words, the partner in the main firm receives the
income not only on his behalf but on behalf of the partners
in the sub-partnership. The Calcutta High Court also seems
to be, in our opinion, erroneously impressed by the argument
that "It is impossible to see how, after a proportionate
share of the income had thus been included in the total
income of a partner for the purposes of his personal
assessment, it could then go anywhere else or could be
further divided between such partners and other parties." We
will deal with this aspect while dealing with the second
point raised by the learned counsel for the revenue.
Mr. Hazarnavis, in this connection, drew our attention to
the following passage in K. A. Ramachar v. Commissioner of
Income-tax, Madras(1):-
"This, in our opinion, is neither in
accordance with the law of partnership nor
with the facts as we have found on the record.
Under the law of partnership, it is the
partner and the partner alone who is entitled
to
(1)42 I.T.B. 25, 29.
462
the profits. A stranger, even if he were an
assignee, has and can have no direct claim to
the profits. By the deeds in question, the
assessee merely allowed a payment to his wife
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and daughters to constitute a valid discharge
in favour of the firm; but what was paid was,
in law, a portion of his profits, or, in other
words, his income".
This passage was also relied on by the High Court. In our
opinion, these observations have to be read in the context
of the facts found in that case. In that case it was
neither urged nor found that a sub-partnership came into
existence between the assessee who was a partner in a firm
and his wife, married daughter and minor daughter. It was a
pure case of assignment of profits (and not losses) by the
partner during the period of eight years. Further the fact
that a sub-partner can have no direct claim, to the profits
vis-a-vis the other partners of the firm and that it is the
partner alone who is entitled to profits vis-a-vis the other
partners does not show that the changed character of the
partner should not be taken into consideration for income
tax purposes. This Court held in Commissioner of Income-
tax, Gujarat v. Abdul Rahim(1) that registration of the firm
could not be refused on the ground that a partner was a
benamidar and that a benamidar is a mere trustee of the real
owner and he has no beneficial interest in the profits of
the business of the real owner. Under the law of
partnership it is the benamidar who would be entitled to
receive the profits from the other partners but for income
tax purposes it does not mean that it is the benamidar who
alone can be assessed in respect of the income received by
him.
In conclusion we hold that the High Court was in error in
holding that there was no question of an overriding
ogligation in this case and that the income remained the
income of Murlidhar Himatsingka in spite of the sub-
partnership created by him under the agreement dated
December 21, 1949.
The second contention raised by Mr. Hazarnavis was not
debated in the High Court, but in our opinion, there is no
substance in this contention. We have already mentioned
that a benamidar can be a partner in a firm. Now if Mr.
Hazarnavis’s contention is right, under s. 25(5)(a) of the
Act it is only he who could be assessed, but there is no
warrant for this proposition. In Commissioner of Income-
tax, West Bengal v. Kalu Babu Lal Chand(2) this Court
mentioned with approval Kaniram Hazarimull v. Commissioner
of Income-tax(1) where income from a partnership received by
a karta was held to be assessable in the hands of Hindu
Undivided famlly.
This Court observed at p. 12 as follows:--
"If for the purpose of contribution of his
share of the capital in the firm the karta
brought in monies out
(1) 55 I.T.R 651. (2) 37 I.T.R. 123.
(3) 27 I.T.R. 294.
463
of the till of the Hindu undivided family,
then he must be regarded as having entered
into the partnernship for the benefit of the
Hindu undivided family and as between him and
the other members of his family he would be
accountable for all profits received b
y him as
his share out of the partnership profits and
such profits would be assessable as income in
the hands of the Hindu undivided family.
Reference may be made to the cases of Kaniram
Hazarimull v. Commissioner of Income-tax(1)
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and Dhanwatav v. Commissioner of Income-tax(1)
in support of this view".
The object of s. 23(5)(a) is not to assess the firm itself
but to apportion the income among the various partners.
After the income has been apportioned, the Income Tax
Officer has to find whether it is the partner who is
assessable or whether the income should be taken to be the
real income of some other person. If it is the real income
of another firm, it is that firm which is liable to be
assessed under s. 23(5)(a) of the Act.
This view was taken by the Bombay High Court in Ratilal B.,
Daftri v. Commissioner of Income-tax(1). The Bombay High
Court observed at p. 24 as follows:--
"The principle asserted in that case is that
even in the case of a partner in a
registered firm, when the question arises
as to his individual assessment, what is to
be considered is not the income allocated to
his share by employing the machinery of
section 23(5)(a), but his real income, and
that real income is what remains after
deducting the amounts which may be said to
have been diverted and never constituted his
real income and such amounts will have to be
excluded before his real income is reached".
In conclusion we hold that there is nothing in s. 23(5)(a)
that prevents the income from the firm Basantlal
Ghanshyamdas being treated as the income of M/s Fatehchand
Murlidhar and s. 23(5)
(a) being applied again.
In the result we accept the appeals, set aside the judgment
of the High Court and answer the questions in the negative.
The appellants will be entitled to costs here and in the
High Court., One hearing fee.
Appeals allowed.
(1)27 I.T.R. 294.
(2) 32 I.T.R. 682.
(3)36 I.T.R. 18.
464