TMI Blog1962 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner also rejected the claim of the assessee, agreeing with the Income-tax Officer that as the assessees share of the income had been computed, no further deduction was permissible therefrom. The contentions of the assessee were pressed before the Tribunal in a further appeal. The Tribunal examined certain decisions purporting to bear upon the point and finally concluded that in so far as those decisions dealt with the matter, they dealt with only deductions permissible in respect of the firms assessment. The Tribunal observed that while interest paid upon capital borrowed by the assessee for investment in the firm was permissible, no other item of expenditure was allowable out of the share income. On the application of the assessee, the following question stands referred to us : Whether the aforesaid sum of ₹ 2,000 constitutes a proper deduction from the assessees share income from Messrs. Swadeshis in the assessment year 1956-57 under any of the provisions of the Income-tax Act ? The assessee as a partner in the firm is entitled to a share in the profits thereof. The profits are earned by the firm and in so far as the business of the firm is concerned, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of holding that when once the share income of the partner had been determined, there was no further scope for any deduction from that share income before including it in the total income of the assessee. Under section 23(5), it is true that in the case of a registered firm the income-tax payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of the assessment shall be determined. The provision requires that the share income of the partner shall be included in his total income, that is, along with the other income which the partner has from other sources, and such total income shall be brought to assessment. Section 16(1)(b) provides that in computing the total income of the assessee who is a partner in a firm, his share shall be taken to be any salary, interest, commission or other remuneration payable to him by the firm in respect of the previous year, together with his share in the profit of the firm. Section 16(1)(b) does not bear the grant of any deduction which would be lawfully admissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance in order to arrive at the true profits and gains of an assessee, and therefore if an assessee claims a deduction against the share which is included in his total income, contending that without that deduction the share will not represent his true profits and gains, in our opinion, the assessee will be entitled to such a deduction. The deduction which would ordinarily be allowed to him would be a deduction which was necessary in order that the assessee was enabled to earn the income which represented the share in the profits. If it was incumbent upon the assessee to spend an amount in order that he should be in a position to remain a partner and to earn the profit, it may be argued that that was a permissible deduction, because without allowing that deduction, the share of the profits would not represent the true income of the assessee. In that particular case, however, it was found on the facts that certain amounts borrowed by the assessee, interest upon which he had to pay, were not borrowed in order to enable the assessee to earn the profits and that the interest deductions were not justifiable deductions. In Moolchand v. Commissioner of Income-tax, the Hyderabad H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs permit him to have some other person to discharge his duty by the firm, or so to say, deputize for him, can he or can he not say that the remuneration paid to that person is a legitimate expenditure ? Can it be said in such a case that the agreed payments he may bona fide make to such persons are no more than appropriation of profits ? We see no difficulty in reaching the conclusion that in such a case the payments that would be made would be legitimate deductions under section 10. .... The question here is not of writ drawn technicalities or any refind distinction, but what is the real income of the partner. The matter has to be approached bearing in mind the commercial aspects of the case. Therefore, in our opinion, the Tribunal was right in the conclusion reached by it that these two sums were legitimate deduction. The only material point to note is that in that case it was found as a matter of fact that the partner was under a duty to manage the affairs of the firm personally and with the permission of the other partners of the firm employed two others to discharge those duties. It was found to be a bona fide transaction. This point would have some relevance when we deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstance that the particular expenditure in that case was incurred in rendering service to the firm and not to the partner. It follows that an allowance under section 10(2) would, in proper cases, be permissible even after the share income is determined. But it has nevertheless to be found whether in the present case expenditure was incurred by the assessee wholly and exclusively for the purpose of earning his share income. The assessees claim was that as he had to attend to other businesses, he was not able to look after the proper conduct of Messrs. General Swadeshis in which he is a partner and for that reason he engaged and deputed Sri Vedaprakash Gupta to be at General Swadeshis as a whole-time worker for and on his behalf . That was what he stated in his grounds of appeal before the Appellate Assistant Commissioner. He further stated that the petitioner could not earn the amount of share from the firm of General Swadeshis unless he employed his own confidential man to look after his interests at all times of the day . Apart from the circumstance that the assessee is a partner and as a partner has the right to concern himself with the management of the firm, no material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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