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Interpretation of provisions of the Indian Income-tax Act regarding the taxation of income arising outside British India by partners of a registered firm. Analysis: The case involved partners of a firm carrying on business within and outside British India. The question was whether the partners should include the entire income of the firm in their total income for Indian Income-tax purposes or exclude a proportion corresponding to income arising outside British India. The High Court at Nagpur answered this question negatively, leading to the appeal before the Privy Council. The judgment focused on the interpretation of Sections 23 and 4(1) of the Indian Income-tax Act. Section 23 deals with the assessment of income and distinguishes between registered and unregistered firms. For registered firms, the partners' share of income is included in their individual assessments. Section 4(1) defines total income, including income from all sources, with specific provisions for income arising outside British India. The appellants argued that the Act's provisions limiting liability for non-residents should override specific provisions dealing with partnership income. However, the Privy Council disagreed, emphasizing the need to read the Act as a whole. The second proviso to Section 23(5)(a) was analyzed, noting the absence of provisions for deductions for income arising outside British India for non-resident partners. The judgment highlighted practical difficulties in implementing the appellants' contention, especially in cases where firms had profits in different locations. It was concluded that modifying Section 23 as per the appellants' argument would complicate operations and lead to uncertainties in determining taxable income for non-resident partners. The Privy Council affirmed the High Court's decision, dismissing the appeal and directing the appellants to pay the costs. In conclusion, the Privy Council upheld the High Court's decision, emphasizing the need to interpret the Indian Income-tax Act cohesively and rejecting the appellants' argument for modifying the provisions regarding partnership income taxation for non-residents.
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