Exempt income and rate computation: statutory inclusion must be express, while super-tax turns on the assessable dissolution amount.

Income exempted under section 25(4) of the Indian Income-tax Act, 1922 was treated as excluded from total income for rate computation because the Act used an express inclusion mechanism in section 16 where exempt income was intended to be brought in for that purpose. The analysis distinguished between income exempt from tax and income excluded from total income, and applied that statutory structure to reject rate-based inclusion of the exempt partnership share. On super-tax, the proviso to section 25(4) was noted as preserving liability where prior assessment conditions were not met, and the amount received on dissolution was treated as the assessable figure on the facts discussed.

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Issues: (i) Whether the assessee's share of profit exempted under section 25(4) of the Indian Income-tax Act, 1922, could nevertheless be included in his total income for the purpose of determining the rate of income-tax. (ii) Whether, for super-tax purposes, the assessable amount was Rs. 41,000 or Rs. 28,686.

Issue (i): Whether the assessee's share of profit exempted under section 25(4) of the Indian Income-tax Act, 1922, could nevertheless be included in his total income for the purpose of determining the rate of income-tax.

Analysis: The scheme of the Act was read as distinguishing between sums merely exempted from tax and sums which are also excluded from total income. The Court held that section 2(15) defines total income as income computed in the manner laid down by the Act as a whole, and that several provisions, including sections 7, 8, 14 and 15, show that where the Legislature intends exempt income to be included for rate purposes, it expressly says so in section 16. As section 25(4) was not brought within section 16, the exempt share of profit could not be treated as part of total income for rate computation.

Conclusion: The question was answered in the negative, in favour of the assessee.

Issue (ii): Whether, for super-tax purposes, the assessable amount was Rs. 41,000 or Rs. 28,686.

Analysis: The proviso to section 25(4) was treated as preserving liability to super-tax in the present case, because the partnership income had not been first assessed to super-tax in the years specified in that proviso. The Court declined to entertain a broader contention that no super-tax liability existed, since the reference itself assumed such liability. On the facts, the amount actually received by the assessee on dissolution was Rs. 41,000, and there was no finding that this sum represented anything less than his share in the partnership.

Conclusion: The assessable amount for super-tax was Rs. 41,000, not Rs. 28,686, in favour of the Revenue.

Final Conclusion: The exempt partnership share was excluded from total income for rate purposes, but the assessee was liable to super-tax on Rs. 41,000 as the amount of his share on dissolution.

Ratio Decidendi: Where the Income-tax Act expressly provides for inclusion of exempt income for rate purposes, such inclusion must be found in the statute; absent such express inclusion, income exempted from tax is also excluded from total income.

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