Partner's share income can be reduced by expenses incurred wholly for earning it, subject to personal-use disallowance.

A partner's share of firm profits is business income in the partner's hands, and expenditure incurred wholly and exclusively to earn that share income is deductible in the partner's individual assessment. Ordinary business outgoings of the firm remain claimable in the firm's assessment, but where the partner personally bears expenses such as rent, travel, legal fees, salaries, wages and miscellaneous outgoings for the business, those items may be allowed to the extent they are not personal in nature. On the facts discussed, the personal element in house rent was disallowed, while the balance of the claimed expenses was treated as deductible against the partner's share income.

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Issues: Whether a partner is entitled to deduct from his share of firm profits the expenditure incurred by him for carrying on the firm's business and earning that share income.

Analysis: The share of a partner in the profits of a firm is business income in his hands, and the expenditure necessary for earning that income is deductible in computing taxable income. Expenses which are normal business outgoings of the firm are to be claimed in the firm's assessment, but where the partner himself incurs expenditure wholly and exclusively for the purpose of earning his share income, such expenditure is allowable in his individual assessment. Applying this principle, the claimed house-rent, legal, travelling, salary and wages, and miscellaneous expenses were examined and, after disallowing a personal element in the house-rent, the balance was treated as deductible.

Conclusion: The partner was entitled to deduction of the allowable expenses from his share income, and the disallowance made by the lower authority was not sustained in full.

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