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TMI Blog1985 (7) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... as such he, entered into, a sub-partnership agreement with one Shafi Mohd., contractor. The partnership agreement dated October 12, 1972, has been submitted as annexure A. Relevant portion of that agreement reads as under : "...Whereas both the partners of the main firm, viz., Shri Alisher, the first party, and Shri Bhanwar Singh, were to arrange finances for the business of the main firm and whereas the first party has little finances of its, own and approached the second party for his share of finances for the business of the main firm and whereas the second party agreed to finance the first party to enable him to finance the main firm to the extent of his share on the condition that the first party shall give to the second party 50% of his share of profit in the main firm in lieu of his making available, necessary finance and whereas in view of this mutual benefits, the parties have agreed to enter into sub-partnership in relation to 50% share of the first party in the said main firm." Clauses 3 and 5 of the partnership deed dated October 12, 1972, are as under: "(3) That the subject-matter of sub-partnership shall be 50% share in the partnership firm, M/s. Bhanwar Singh Ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received by Shri Shaffi Mohd. (sic) from this fact, it is clear that this sub-partnership entered into between Shri Alisher and Shri Shaffi Mohd. helped the main firm in carrying on its business. Shri Alisher has already paid tax according to his share. If Alisher sub-divided his profit with Shaffi Mohd., in my opinion, he will not be required to pay further tax. If Alisher is further required to pay the tax, it would be double taxation on the same income. Thus, in my opinion, the finding of the learned Appellate Assistant Commissioner is quite correct." The Commissioner submitted an application under section 256(1) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short " the Act "). The Tribunal allowed the application and referred the aforesaid questions. We have heard Mr. B. R. Arora, for the Revenue, and despite service of notice, nobody has appeared on behalf of the assessee. We have reproduced the relevant portion of the partnership agreement dated October 12, 1972, which clearly shows that there was sub-partnership between Alisher and Shafi Mohd. in respect of the share of Alisher in the main firm, Bhanwar Singh Alisher, Bhadra. There is no dispute before us and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act") arose, which has now been replaced by section 182 of the Act. In that case, there was a registered partnership firm consisting of sixteen partners. The partners were to share the profit or loss in proportion to the capital contributed by each partner. The share of the assessee, who was a partner and had contributed Rs. 25,000 out of the capital of the partnership of Rs. 3,45,000, was determined at Rs. 14,661 in accordance with the provisions of section 23(5)(a) of the old Act. A contention was raised that the whole of the sum of Rs. 14,661 did not belong to him but only 2/5ths of that amount, viz., Rs. 5,864. He relied upon an agreement between himself and four others entered into on the same date on which the deed of the registered partnership was executed. The agreement provided that five parties who had contributed diverse sums amounting to Rs. 25,000 were to share the profits or losses in proportion to their individual contribution and also mentioned that the terms and conditions mentioned in the registered partnership were to be applicable and binding on them. The Division Bench consisting of S. T. Desai and K. T. Desai JJ. held that even in the case of assessment of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner in the original partnership. When a sub-partnership is entered into, the partner changes his character vis-a-vis the sub-partners and the income-tax authorities, although other partners in the original partnership are not affected by the changes that may have taken place. In the case of a sub-partnership, the sub-partnership creates a superior title and diverts the income from the main firm before it becomes the income of partner. In other words, the partner in the main firm receives the income not only on his behalf but on behalf of the partners of the sub-partnership." Here, it may be stated that after noticing Kaniram Hazarimull v. CIT [1955] 27 ITR 294 (Cal) and Dhanwatay v. CIT [1957] 32 ITR 682 (Bom), their Lordships of the Supreme Court observed as under ([1966] 62 ITR at p. 333): " The object of section 23(5)(a) is not to assess the firm itself but to apportion the income among the various partners. After the income has been apportioned, the Income-tax Officer has to find whether it is the partner who is assessable or whether the income should be taken to be the real income of some other person. If it is the real income of another firm, it is that firm which is l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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