Law:

Section:

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10 of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1958-59 - Whether profits of firm distributed amongst its partners cannot be said to have retained original character of sources from which partnership derived its income - Held, yes - Whether, therefore, share income of a partner from partnership should be treated in his assessment as income derived from 'profits and gains of business' and accordingly, assessable under section 10 of 1922 Act - Held, yes FACTS The assessee was a partner in two registered firms. In making the assessment on the assessee the ITO took the certain amounts as the share income from the said firms and allocated them as share of business loss under section 10 of the 1922 Act and share of dividend income under section 12 of the 1922 Act. By the share income being taken separately in respect of business loss and dividend income the assessee stood to loss because the dividend income was treated as unearned income and higher surcharge was payable. On appeal, the AAC affirmed the order of the ITO. On second appeal, considering sections 16(1)(b) and 23(5)(a) of the 1922 Act, the Tribunal held that in none of these provisions was there any clear indication that the share income was to be disintegrated into its components as assessed in the instant case. Relying on the decision in Arvind N. Mafatlal v. ITO [1957] 32 ITR 350 (Bom.), the Tribunal further held that the amounts dealt with as dividend income and assessed in the hands of the firm order the head 'other sources' should have been treated as business income and it was share of profits of a firm which was assessable under the law in force under the head 'business, profession or vocation'. On reference : HELD The profits of the firm distributed amongst its partners cannot be said to have retained the original character of the sources from which the partnership derived its income. If the share income of a partner retains the character of the different sources from which the partnership derived its income, then in cases where the partnership has different sources of income such income…

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