Court rules income stream belongs to assessee until 1971, then becomes part of sub-partnership. Decision favors Revenue.

The High Court held that there was no diversion of 50% share income at source from the beginning of 1971. The court found that until November 26, 1971, the income belonged solely to the assessee, and only after that date did it become part of the sub-partnership. The judgment favored the Revenue, affirming the Appellate Assistant Commissioner's decision that the income should be governed by the sub-partnership from November 1971 onwards. The court directed further action by the Income-tax Appellate Tribunal, "A" Bench, Patna.

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Issues:
1. Whether there was a diversion of 50% of the share income at source from the beginning of 1971Rs.
2. Whether the share income was to be excluded to the extent of one anna only after November 1971, and not from the beginning of the yearRs.

Analysis:
The judgment by the High Court in Patna dealt with a case involving the assessment year 1972-73 where the respondent, the Revenue, was in dispute with the assessee regarding the inclusion of the entire two annas profit of a firm in the assessment of the assessee. The assessee, a partner in the firm, claimed that only 50% of the share should be included in her hand, and the other 50% belonged to a trust. The Appellate Assistant Commissioner found that a sub-partnership was in existence in November 1971, and directed that the profit arising after the end of November 1971 should be governed by the sub-partnership. The Income-tax Appellate Tribunal affirmed this decision, leading to the reference of questions of law to the High Court.

The main contention was whether there was a diversion of 50% of the share income at source from the beginning of 1971. The assessee argued that the income should be shared equally between her and the trust from the beginning of the year when the sub-partnership came into existence. However, the Appellate Assistant Commissioner's order highlighted that until November 26, 1971, the income earned by the assessee was in her individual capacity, and only after that date did the income become that of the sub-partnership. The High Court agreed with this finding, stating that the income received by the assessee from the firm accrued solely to her until November 1971, and only after that did it belong to the sub-partnership.

The High Court concluded that the Income-tax Appellate Tribunal was justified in holding that there was no diversion of 50% share income at source from the beginning of the year 1971. The judgment answered both questions in the affirmative, against the assessee and in favor of the Revenue. The court directed the forwarding of a copy of the judgment to the Income-tax Appellate Tribunal, "A" Bench, Patna, for further action.

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