Law:

Section:

Section 2(7)(iii)(b) of Finance (No. 2) Act, 1962 - Earned income - Whether expression "actively engaged in conduct of business" occurring in section 2(7)(iii)(b) does not necessarily signify active and continuous participation in actual transaction of day-to-day business of firm; it is flexible enough to take in case of a partner who devotes time, attention and labour to some activity or assignment calculated or designed to lead to preservation, growth or advancement of business of firm - Held, yes - Whether therefore, where partner was sent abroad during relevant year, at expense of firm to obtain higher educational qualification, in line of business in which firm was engaged, share of partner in profits of firm was earned income - Held, yes Words and phrases : Expression "actively engaged in conduct of the business" as occurring in section 2(7)(iii)(b) of Finance (No. 2) Act, 1962 FACTS The assessee who was partner in a firm carrying on business of construction work, was sent abroad at expense of the firm to obtain better educational qualifications and technical knowledge in engineering so that he could on return help in advancement of the business of the firm. The assessee claimed in the assessment proceedings that his share in the profits of the firm was "earned income" because during the relevant period he was actively engaged as a partner in the conduct of the business of the firms. The ITO negatived the claim of the assessee on the ground that since the assessee had gone to the USA for prosecuting further studies in January, 1961, and was away from India for a period of about nine months during the relevant accounting year, the assessee could not be said to have been actively engaged as a partner in the conduct of the business of the firm. The ITO accordingly treated the said income as unearned income and brought it to tax on that basis. The AAC dismissed the assessee's appeal. The Tribunal however allowed the claim of the assessee. On reference : HELD Earned income according to the definition given is section 2(7)(iii)(b) of the Finance (No. 2) Act, 1962 means any income an assessee who is taxed as an individual, which is chargeable under the head…

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