Non-resident partner taxation: foreign firm profits remain taxable, and maximum-rate levy stands without the required declaration.
A non-resident partner of a resident registered firm could not exclude his share of the firm's foreign profits from total income under section 4(1)(c) of the Income-tax Act, 1922, because section 23(5)(a) treated the firm as the assessment unit and required the partner's share of profits to be brought into his assessment. The Court accepted the settled view, including the earlier Privy Council position, that the proviso to section 23(5)(a) did not permit such exclusion. The levy of tax at the maximum rate was also upheld because no declaration under the proviso to section 17(1) had been filed, and no separate defect in that levy was shown.
Issues: (i) Whether a non-resident partner of a resident registered firm could exclude his share of the firm's foreign income from his total income under section 4(1)(c) of the Income-tax Act, 1922. (ii) Whether the levy of tax at the maximum rate was correct in the absence of the declaration required by the proviso to section 17(1) of the Income-tax Act, 1922.
Issue (i): Whether a non-resident partner of a resident registered firm could exclude his share of the firm's foreign income from his total income under section 4(1)(c) of the Income-tax Act, 1922.
Analysis: The relevant scheme of section 23(5)(a) treated the registered firm as the unit of assessment and required the partner's share of the firm's profits and gains to be brought into his assessment. The Court relied on the settled view that the language of the proviso to section 23(5)(a) did not permit the non-resident partner to invoke section 4(1)(c) so as to exclude his proportionate share of the firm's foreign income from total income. The earlier Privy Council view was treated as correctly stating the law.
Conclusion: The exclusion was not permissible and the assessment including the partner's share of foreign income was valid, against the assessee.
Issue (ii): Whether the levy of tax at the maximum rate was correct in the absence of the declaration required by the proviso to section 17(1) of the Income-tax Act, 1922.
Analysis: The assessment had been made at the maximum rate because the assessee had not filed the declaration contemplated by the proviso to section 17(1). No separate infirmity in that levy was found once the assessment scheme applicable to the non-resident partner was upheld.
Conclusion: The levy of tax at the maximum rate was upheld, against the assessee.
Final Conclusion: The appeal failed in full and the assessment as made was sustained.
Ratio Decidendi: A non-resident partner of a resident registered firm cannot exclude his share of the firm's foreign profits from his total income under section 4(1)(c) where section 23(5)(a) governs the assessment of the partner's share in the firm's income.
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