Partner's share in firm's agricultural income excluded from rate computation under the Finance Act and section 10(2A)

Under the Finance Act, 1992 scheme, net agricultural income had to be computed under the First Schedule, but the proviso to Rule 5 of Part IV excluded that mechanism for assessment years beginning on or after 1 April 1993. Section 10(2A) of the Income-tax Act, 1961 further provided that a partner's share in the total income of a firm separately assessed as such would not form part of the partner's total income. On that basis, a partner's share in a firm's agricultural income was not to be treated as the partner's agricultural income for rate purposes in computing other income.

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Issues: Whether the assessees' share in the agricultural income of a firm was liable to be included for rate purposes in computing their other income for the assessment years after the insertion of section 10(2A) and the relevant Finance Act provisions.

Analysis: The governing scheme under section 2(9)(d) of the Finance Act, 1992 required net agricultural income to be computed in accordance with the First Schedule. The proviso to Rule 5 of Part IV of that Schedule excluded its application for assessment years commencing on or after 1 April 1993. Section 10(2A) of the Income-tax Act, 1961 also provided that a partner's share in the total income of a firm separately assessed as such would not form part of the partner's total income. On that basis, the agricultural income of a firm was not to be treated as the agricultural income of the partners for rate purposes in the partners' hands.

Conclusion: The exclusion of the assessees' share in the firm's agricultural income from rate computation was in law and the Revenue's challenge failed.

Final Conclusion: The assessment of the assessees' other income could not include their share of the firm's agricultural income for rate purposes for the years under appeal.

Ratio Decidendi: Where the applicable Finance Act rules and section 10(2A) exclude a partner's share of a firm's income from the partner's total income, that share cannot be aggregated as the partner's agricultural income for rate purposes.

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