TMI Blog1960 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... imum rate is correct ? The facts leading to this reference are briefly these. A firm, consisting of four partners, styled Gnanam and Sons, Colombo, is carrying on business in Colombo. This firm is an admittedly resident and ordinarily resident firm in the taxable territories. Of the four partners, three are also admitted to be resident in India. One of the partners, Kumaraswamy, is a non-resident, and his share income was computed at ₹ 3,667 for the assessment year 1951-52 and ₹ 4,337 for the assessment year 1952-53. The Income-tax Officer took proceedings under section 34 of the Act after obtaining the prior sanction of the Commissioner and made orders of assessment on the firm under the second proviso to section 23(5)(a). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e territories by him during the year. Pursuing this line of argument, it is contended that what sub-section (5)(a) of section 23 intends to tax is the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, and this concept of the total income must be carried into the proviso relevant to a non-resident partner. It would accordingly mean that since this income arose wholly outside the taxable territories and was not brought into the taxable territories, it has to be excluded by the operation of section 4(1)(c) of the Act, with the result that the income that is liable to be taxed under the second proviso is nil. This line of argument appears to be simple, but it seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he wording of the prefatory part of the subsection that in the case of a firm, the total income of the firm has first of all to be determined. Sub-sections (a) and (b) lay down what consequences follow according as the firm is a registered or an unregistered one. Sub-section (5)(a) falls naturally into two parts. The first part deals with the case where all the partners of the firm are resident in the taxable territories, in which event the total income of the firm as assessed is not brought to tax but the total income of each partner of the firm including therein his share of such assessment is determined. In the latter part of the section covered by the second proviso, the case where any of such partners happens to be a nonresident has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf on his total income shall be an amount equal to-(a) the income which would be payable on his total income at the maximum rate, plus There is a proviso to this section which enables the assessee to declare by notice in writing to the Income-tax Officer that the tax including super-tax payable by him or on his behalf on his total income shall be determined with reference to his total world income. This proviso indicates that an option is given to a non-resident called upon to pay tax under section 17(1)(a) to agree to be assessed with reference to his total world income. He is required to indicate his option by a notice in writing to the Income-tax Officer. It is not necessary to examine whether such an option was properly exercised or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment is entitled to consider his share in the firm income as the total income for the purpose of levy of tax. It is obvious that in the case of a non-resident, it is impossible for the department to be aware without information furnished by such non-resident of all his sources of income in the taxable territories or elsewhere so that the total income within the meaning of section 2(15) cannot possibly be worked out. If the total income of such a non-resident person could be assessed in the same manner as the total income of the resident partners of the firm is assessed under the first part of sub-section (5), clause (a), there would be no difficulty in making an assessment of the tax at the rates applicable to that income. But that is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm itself in respect of the share income of such non-resident partner at the rate at which such a non-resident would be liable to pay tax. This part of the provision of the proviso clearly brings section 17 into operation. It was argued by Sri Srinivasan for the assessee that the decision in Seth Badridas Daga v. Commissioner of Income-tax [1949] 17 ITR 209 (PC), relying upon which the income-tax authorities have made the assessments and the Tribunal had dismissed the appeals, does not apply to the facts of the present case. A careful reading of this decision, however, inclines us to the view, that the very point that has been raised by the assessee in this case demanding the exclusion of that portion of the income which arose outs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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