TMI Blog1958 (9) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ome other persons including the assessee entered into a partnership and carried on business in salt under the name and style of Bombay Salt Dealers' Syndicate. The agreement of partnership was in writing and was dated 6th October, 1947. There were 16 partners and the partners between them contributed the capital of the firm which was ₹ 3,45,000, of which the contribution of the assessee was ₹ 25,000. The partners were to bear and share the losses and profits respectively in the firm in proportion to the capital contribution made by them. The share of the assessee came to 5/69 in the profit and loss of the business. The Income-tax Officer took up the matter of the assessment of the firm for the year 1949-50 and determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that was an agreement of partnership within a partnership. The Income-tax Officer decided that the arrangement between the assessee and the four other persons was only of the nature of an apportionment of profits after the assessee had earned them. He disallowed the contention and assessed the assessee in the whole amount of ₹ 14,661. On appeal, the Appellate Assistant Commissioner took a contrary view. His conclusion was that the arrangement embodied in the writing executed by the five persons on 6th October, 1947, was in the nature of a sub-partnership between the assessee and the four others. He observed that the agreement between these persons was an agreement for diverting the income of the assessee by an overriding title and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip agreement of what we may describe as the parent firm was also executed and the arrangement arrived at between the five persons, reflected the true position. The question we are called upon to determine is: Whether, having regard to the provisions of sections 26A, 23(5)(a), 16(1)(b) and the agreement dated 6th October, 1947, between the assessee and the four persons, the sum of ₹ 14,661 or ₹ 5,864 shall be assessed in the hands of the assessee as his share in the profits of the registered firm, Bombay Salt Dealers' Syndicate. A very short contention has been urged before us by Mr. Samarth, learned counsel for the assessee. The argument is that even in the case of a partner in a registered firm when the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be deducted before ascertaining their taxable income. The contention that the amount of a sub-share was paid to A's wife, it was held, could not be taken into consideration in the assessment of the firm. But it was also held that that consideration did not prevent A and B, the partners, from claiming that their real income was not on the footing of 8 annas share in the managing agency commission but only of 8 annas share less the amount which A's wife was entitled to receive from each of them. At the bottom of page 739 in the report of that case, the learned Chief Justice observed as follows: But it is clear position in law, as we shall presently point out, that even though an assessee may not be allowed to claim a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8] 33 I.T.R. 390. In that case also we applied the test laid down in the case of Seth Motilal Manekchand v. Commissioner of Income-tax [1957] 31 I.T.R. 735. Mr. G.N. Joshi, learned counsel for the Revenue, has tried to distinguish that case on facts. According to Mr. Joshi, in that case there was a partition before the partnership agreement was executed and the partnership was actually a mode or method of giving effect to the partition and the managing agency was an asset of the family. Now, it is rarely that the facts of two cases may be identical or entirely similar. We are more concerned with the ratio decidendi of that case than the actual facts on which the decision turned. The principle ascertained in that case is that even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal income of the firm, and when a partner is to be assessed, what is the real income of the partner. In our judgment, in the case of a partner in a registered firm, ultimately it is his real income which alone can be taxed and not any artificial income that he may be said to have earned. In the course of the arguments our attention was drawn to a judgment of a Division Bench of the Punjab High Court in Commissioner of Income-tax v. Laxmi Trading Company [1953] 24 I.T.R. 173, where the view taken was that there could in law be a partnership between a partner in the parent firm and an outsider in respect of that partner's share in the parent firm and that in such a case the partners in the sub-partnership or the sub-firm have a right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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