Interest on securities and partner's share income: specific income heads prevail, while partnership share remained business income for relief.

Interest on Government securities held as stock-in-trade is chargeable under the specific head "interest on securities" and cannot be treated as business income merely because the securities are trading assets. For a registered firm under the 1922 Act, a partner's share is taken as share of partnership profits after apportionment of the firm's total income, and the later head-wise apportionment rule in section 67(2) of the 1961 Act was not retrospective. The partner's share income was therefore not required to be split under different heads on the firm's assessment pattern, and the share income, including the component linked to securities interest, was treated as business income in the partner's hands for earned income relief.

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Issues: (i) Whether interest received by a dealer in Government securities held as stock-in-trade is assessable as interest income or business income; (ii) whether, for a registered firm, the partner's share income could be apportioned under the same heads as the firm's assessment in computing the partner's tax liability; (iii) whether the partner's share income, including the component relatable to interest on securities, is business income so as to qualify for earned income relief.

Issue (i): Whether interest received by a dealer in Government securities held as stock-in-trade is assessable as interest income or business income.

Analysis: The governing principle is that the heads of income under the Act are mutually exclusive and an item falling specifically under one head must be assessed under that head alone. Interest on securities is specifically chargeable under the head "interest on securities" and cannot be brought under business income merely because the securities are held as trading assets.

Conclusion: The interest was assessable as interest income under section 8 of the Indian Income-tax Act, 1922, not as business income.

Issue (ii): Whether, for a registered firm, the partner's share income could be apportioned under the same heads as the firm's assessment in computing the partner's tax liability.

Analysis: Under the 1922 Act, the partner's share, after apportionment of the firm's total income, is taken as the partner's share of the firm's profits and is computed under the scheme of section 16(1)(b) read with section 23(5) and section 23(6). The later rule in section 67(2) of the 1961 Act, which apportions a partner's share under the same heads as the firm's income, was held not to be declaratory or retrospective. The individual partner's share could not therefore be split and assessed under different heads merely because the firm's income had been so computed.

Conclusion: The apportionment made by the Income-tax Officer was neither legal nor valid.

Issue (iii): Whether the partner's share income, including the component relatable to interest on securities, is business income so as to qualify for earned income relief.

Analysis: Once the firm's income is apportioned under the 1922 Act, the partner receives his share as share income from the partnership business. On the settled view of the Act, such share income is business income in the partner's hands, and the introduction of section 67(2) of the 1961 Act did not alter the position retrospectively for earlier assessment years.

Conclusion: The partner's share income was business income and the partner was entitled to earned income relief under section 15A of the Indian Income-tax Act, 1922.

Final Conclusion: The reference was answered by holding that the interest on Government securities remained assessable under the specific head, but the partner's share income, after lawful apportionment, was business income in the partner's hands and qualified for earned income relief.

Ratio Decidendi: Under the 1922 Act, a partner's share received on apportionment of a firm's total income is assessed as share of partnership profits in the partner's hands, and a later statutory rule requiring head-wise apportionment cannot be applied retrospectively to earlier years.

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