Earned income relief applies to statutorily included business income when the assessee is actively engaged in management.

Earned income relief was available where income of another person was statutorily included in an assessee's total income, provided the assessee himself satisfied the requirement of active engagement in the conduct of the business. The legal fiction under the Income-tax Act, 1922 treated the minors' share income as the assessee's income for tax purposes, and the relevant enquiry was the assessee's own participation in the partnership business. As he was found to be in general management and actively engaged in the business, the included share income retained the character of earned income and qualified for relief.

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Issues: Whether earned income relief was available on the shares of the assessee's minor sons included in his total income under section 16(3)(a)(ii) of the Income-tax Act, 1922, when the assessee was actively engaged in the conduct of the partnership business.

Analysis: Earned income was defined by section 2(6AA) of the Income-tax Act, 1922 as income of the assessee chargeable under the head of profits and gains of business, and the inclusive part covered income of another person brought into the assessee's total income under the Act. The decisive factor was whether the assessee himself satisfied the requirement of active engagement in the conduct of the business. Since the partnership business was carried on by the assessee and he was found to be in general management and actively engaged, the fact that the minors' share income was legally deemed to be his income did not prevent that income from being treated as earned income. The legal fiction under the Act made the income assessable in the assessee's hands for all purposes, and the other person's participation was not relevant to the assessee's entitlement.

Conclusion: The assessee was entitled to earned income relief on the minors' share income included in his assessable income.

Ratio Decidendi: Where income of another person is included in an assessee's total income by a statutory legal fiction, earned income relief depends on whether the assessee himself satisfies the statutory requirement of active engagement in the business, and not on whether the other person does so.

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