Law: Income Tax Act, 1922

Section: 23(5)(a)

Law: Income Tax Act, 1961

Section: 182

Section 182 of the Income-tax Act, 1961 (Corresponding to section 23(5)(a) of the Indian Income-tax Act, 1922) - Firm - Position prior to 1-4-1993 - Assessee was one of 16 partners in registered firm - As per partnership deed, partners were to bear and share losses and profits respectively in firm in proportion to capital contribution made by them - Share of assessee came to 5/69 in profit and loss of business - After determining total income of firm, ITO applied provisions of section 23(5)(a) of 1922 Act and 5/69 share of assessee in profit of firm was determined at Rs. 14,661 - Assessee contended that whole of 5/69 share did not belong to him and that his own share was only 2/5 of that 5/69 share - According to him, remaining share belonged to four persons with whom he had entered into agreement - As per said agreement, said persons had contributed diverse amounts totalling up to assessee's capital contribution in firm - Whether in case of partner in registered firm, ultimately it is his real income which alone can be taxed and not any artificial income that he may be said to have earned - Held, yes - Whether, therefore, a sum of Rs. 5,864 would be assessed in hands of assessee representing his 2/5th share in profits of registered firm and not entire sum of Rs. 14,661 - Held, yes FACTS One 'B' and some other persons including the assessee entered into a partnership and carried on business. There were 16 partners and the partners between them contributed the capital of the firm which was Rs. 3,45,000, of which the contribution of the assessee was Rs. 25,000. The partners were to bear and share the losses and profits respectively in the firm in proportion to the capital contribution made by them. The share of the assessee came to 5/69 in the profit and loss of the business. After determining the total income of the firm which was registered, the Income-tax Officer applied the provisions of section 23(5)(a) and the 5/69th share of the assessee in the profits of the firm for the relevant year was determined at Rs. 14,661. The assessee contended that the whole share of 5/69th in the partnership firm did not belong to him and that his own share was only 2/5th of…

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