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TMI Blog1968 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a partner of Jyothikrishnan and Company, Erode, which has two others as partners thereto. The assessee is entitled to a one-third share of the profits in this firm. The assessee is also a partner in the firm, Erode Bleaching and Finishing Company, Erode, in which there are four others as partners. Jyothikrishna and Company, hereinafter referred to as " J " firm, found the wherewithal for the Erode Bleaching and Finishing Company, hereinafter called the " B " firm, and advanced moneys from time to time to provide a building and machinery for the " B " firm. Such advances amounted up to Rs. 25,000. This amount was treated, for mercantile purposes, as the capital of the assessee in the books of the " B " firm. There was an understandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the return and treated the entire amount of Rs. 34,470 as the income of the assessee. The Appellate Assistant Commissioner as well as the Tribunal were of a different view and held : " . . . what was to be considered was not the income allocated to the share of a partner in a registered firm under section 23(5)(a), but his real income, and that the real income was what remained after deducting the amounts which might be said to have been diverted and never constituted his real income, that, therefore, the entire amount of Rs. 34,470 which was allotted to the assessee from the Erode Bleaching and Finishing Company did not represent the assessee's real income and that it was only a one third share of that amount that constituted his r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax and Murlidhbar Himatsingka v. Commissioner of Income-tax , urged that the agreement dated August 15, 1951, is a specific pointer to the arrangement between the partners of the " J " firm, whereby the income of the assessee has sloped down in accordance with its tenor. It is not the notional income, but the real income of an assessee that has to be reckoned for purposes of taxation. He thus supports the order of the Tribunal. The answer to the question referred to, which is obviously wide enough, depends upon the true scope of the word " income " which is exigible to tax. It is not every income of an assessee but the real income earned by him in the commercial and normal sense, which enters into the magnitude of its monetary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language. " Thus, it is by now well settled that income which is susceptible to tax is real income as is commercially understood. Even so, in ascertaining the real income of a partner in a registered firm under section 23(5)(a) of the Act, it is obligatory on the part of the revenue to find after ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her partners but for income-tax purposes it does not mean that it is the benamidar alone who can be assessed in respect of the income received by him. " The only citation relied upon by the revenue, K. A. Ramachar v. Commissioner of Income-tax, is indeed distinguishable. On the facts it appears that the assessee therein earned the income and devised a scheme for its division. It was a case of assignment of profits by the partner for a period of time. In fact, this decision was noticed when the Supreme Court laid down the dicta in Murlidhar Himatsingka v. Commissioner of Income-tax. In the instant case, the agreement envisages a clear and inflexible obligation on the part of the assessee to share the profits in the " B " firm with others i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a long number of years. The accidental absence of a stipulation by the " J " firm to bear the losses may not be the only criterion to hold otherwise. Judging the agreement as a whole it appears to be bona fide and not forged with any oblique purpose. We are of the view that the agreement has the effect of making an effective alienation at source of the profits by an overriding title created by it. The real income of the assessee in the " B " firm has been rightly stated by him in his return, as one-third of his share income therein.
We, therefore, answer the question referred in the affirmative and in favour of the assessee and against the revenue. Counsel's fee Rs. 250.
Question answered in the affirmative. X X X X Extracts X X X X X X X X Extracts X X X X
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