1983 (2) TMI 69 - AT - Income Tax

Non-resident partners' share income assessed on firm, not individual, per Income-tax Act.

The Tribunal held that the share income of a non-resident partner should be assessed on the firm under section 182(3) of the Income-tax Act, excluding it ... Minor Child, Registered Firm, Share Income, Total Income Issues Involved:1. Inclusion of share income of a non-resident partner in the individual assessment of the non-resident.2. Inclusion of share income of a non-resident minor in the individual assessment of the non-resident parent under section 64(1)(iii) of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Inclusion of Share Income of a Non-Resident Partner in the Individual Assessment of the Non-ResidentThe core issue is whether the share income from two firms, where the assessee (a non-resident) is a partner, should be included in her individual assessment or assessed in the hands of the firm under section 182(3) of the Income-tax Act, 1961. The assessee argued that the share income should be assessed in the hands of the firm. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) held that section 182(3) is a machinery section and allows the ITO to assess the non-resident partner directly.The Tribunal examined section 182(3), which states that the tax on the share income of a non-resident partner shall be assessed on the firm at the rate applicable if it were assessed on the non-resident personally, and the tax so assessed shall be paid by the firm. The Tribunal referred to similar provisions under the 1922 Act and relevant case laws, including *Gnanam & Sons v. CIT* and *CIT v. Naraindas Dwarkadas*, which held that the share income of a non-resident partner should be assessed on the firm, not the individual.Thus, the Tribunal concluded that the share income of the non-resident partner should be assessed on the firm under section 182(3) and excluded from the individual assessment of the non-resident. The Tribunal directed the ITO to assess the share income on the firms, Golden Corn Co. and Golden Corn Machinery Co., at the applicable rates and ensure the tax is paid by the firms.Issue 2: Inclusion of Share Income of a Non-Resident Minor in the Individual Assessment of the Non-Resident Parent under Section 64(1)(iii)The second issue concerns whether the share income of the assessee's minor daughter, who is also a non-resident and a partner in Bangalore Co., should be included in the assessee's individual assessment under section 64(1)(iii). The AAC upheld the inclusion, stating that section 64(1)(iii) is a special provision and should prevail.The Tribunal analyzed section 64(1)(iii), which mandates the inclusion of a minor's income in the parent's assessment. However, it noted that section 182(3) applies equally to non-resident minors. Since the minor daughter's share income is assessable on the firm under section 182(3), it cannot be included in the individual assessment of the non-resident parent.The Tribunal concluded that the share income of the minor daughter should be assessed on Bangalore Co. at the applicable rates, and the tax should be paid by the firm. Therefore, the inclusion of the minor's share income in the assessee's individual assessment was incorrect.Conclusion:The Tribunal allowed the appeals, directing that the share income of the non-resident assessee and her minor daughter should be assessed on the respective firms under section 182(3) and excluded from the individual assessments.