COMMISSIONER OF INCOME-TAX Vs. MALARARYAN CHETTIAR

JUDGEMENT

(1.) The question propounded is: Whether the sum of Rs. 59,968 remitted in 1931-1932 by the Saigon-partnership out of its profits to the Rangoon partnership amounted to a receipt of profits pro tanto by the partners in 1931-1932 so as to be assessable in their hands.

(2.) The assessee was and is a partner in a money-lending business carried on in Rangoon consisting of three partners under the vilasam of M.A.L. The same three partners are the sole partners in a similar business carried on in Saigon under the same vilasam. During the period commencing with the 21 May, 1931 and ending on the 24 March, 1932, by means of three remittances made by telegraphic transfers and by bank drafts a sum of Rs. 59,967-8-0 was remitted by Saigon to Rangoon. It has been found as a fact that these remittances came out of profits made by the Saigon partnership. Under these circumstances the share of the assessee in that sum was assessed under Section 34 of the Indian Income-tax Act. The contention put before the Income-tax Officer was that the partnership itself ought not to be assessed and it appears also that the advocate who appeared before the Income-tax Officer, Rangoon, who had charge of this matter admitted that the individual partners should instead be assessed. In any case quite apart from the admission made, the Income-tax Officer, Rangoon, held following the decision in Martin & Co. V/s. Commissioner of Income-tax, Bengal (1930) 4 I.T.C. 478 that the contention of the assessee was correct and that the partnership was not liable to be assessed to income-tax. The Income-tax Officer here then proceeded to assess the partners individually. The contention raised before us is that they are not liable to be so assessed; and it was strenuously argued that upon the authority of the case already referred to, this being a remittance from a separate entity, namely, the Saigon partnership to another entity, namely, the Rangoon partnership, the partnership was not liable to be assessed. From this Mr. K.S. Krishnaswami Aiyangar who appeared on behalf of the assessee contended that the partner also could not be assessed though he conceded that this sum could not escape assessment but was quite unable to state upon whom the assessment was to be made other than the individual partners or the partnership. His argument was this that this was a remittance of a lump sum of profits and until there had been an allocation amongst the partners of their shares in these profits, the individual partners could not be held to have received those profits and that until there was such an allocation, it could not be said that there was any receipt by them of the profits. He relied upon the decision of this High Court in S.L.S. Chettiappa Chettiar V/s. Commissioner of Income-tax, Madras (1930) 4 I.T.C. 188. The answer to this contention seems to me to be this that there was admittedly a receipt in British India of profits gained abroad. By whom were those profits F.B. received? If the contention of the assessee before the Income-tax Officer was correct, then those profits were not received by the partnership in such a way as to render the partnership itself assessable. But as those profits had been received, they must have been received by somebody. The only other alternative is that they were received by the partners individually and there does not seem to me to be any other possible alternative. If the partnership itself is not assessable, clearly in my view, the individual partners are. Although it may be true that they have not received this money into their own hands, the receipt of this money by the partnership was a receipt on behalf of the partners and if, as is contended by the assessee, the decision in S.LS. Chettiappa Chettiar V/s. Commissioner of Income-tax, Madras (1930) 4 I.T.C. 188 goes to the length of saying that until there is an allocation amongst the partners of the profits there can be no receipt, with great respect I feel myself unable to agree with it. The deed of partnership of the Rangoon business sets out the shares to which each of the three partners is entitled and, the money having been received by the partnership on behalf of the partners, it is merely a matter of arithmetic to ascertain what the share in those profits of each of the individual partners is. There is nothing in the Indian Income-tax Act which says that a partnership or a firm is to be assessed first. Either the firm itself is liable to be assessed or its individual partners. In this case an attempt was made to assess the firm and yielding to the contention raised by the assessee the firm was absolved from assessment and the individual partners were sought to be assessed. I think that the Income-tax Officer was mistaken in holding that the partnership was not liable to assessment in respect of those profits as in my opinion Martin's case already referred to does not touch this point at all. These profits therefore escaped assessment in the hands of the firms. It was open to the income-tax authorities to assess the partners individually. It seems to me that if any authority for such a procedure is needed, it is to be found in the decision in Neemchand Daga V/s. Commissioner of Income-tax, Bengal (1931) 5 I.T.C. 206. In my view, the assessee was clearly assessable to income-tax in respect of his share in the sum of Rs. 59,968. The question must, therefore, be answered in the affirmative. The Commissioner of Income-tax will get Rs. 250 costs. King, J.

(3.) I agree. Gentle, J.