Law:

Section:

(i) Section 67, read with section 158 of the Income-tax Act, 1961 – [Corresponding to section 16, read with section 23(6) of Indian Income-tax Act, 1922] – Firm – Computation of partner's share in income of – Assessment years 1949-50 to 1953-54, 1957-58 to 1959-60 and 1961-62 – Whether provisions of section 67(2) of 1961 Act are not declaratory and as such same cannot be applied retrospectively to case arising under 1922 Act – Held, yes – Whether share income which a partner receives on apportionment of firm's income affected under section 23(6) of 1922 Act, should always be regarded as business income assessable under section 10 of 1922 Act and, therefore, individual partners would be entitled to earned income relief under section 15A of 1922 Act – Held, yes FACTS The assessees were partners in a firm which was a dealer in Government securities and it also received interest on Government securities, which formed its stock-in-trade, for the relevant assessment years. The income of the firm was determined by the ITO for assessment purposes under two heads, viz., (i ) business, and (ii) Interest on securities. In the individual assessments of the partners, the ITO apportioned the firm's income in their hands under both the above heads, and refused to allow earned income relief under section 15A of the 1922 Act to the partners in respect of interest-income on securities because in his opinion it was not business income. The AAC upheld the action of the ITO. On further appeal, the Tribunal held that the share income of the individual partners from the firm was only assessable under section 10 of the 1922 Act and in that view of the matter the individual partners were entitled to earned income relief under section 15A of the 1922 Act even in respect of a portion of share income which was interest on securities. On reference, the revenue contended that the principle to be deduced from section 67(2) of the 1961 Act must be regarded as implicit in the scheme of the old Act of 1922 and, therefore, the ITO's apportionment of the individual partner's share income under two different heads must be regarded as proper and valid and the individual partners must be held to…

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