TaxTMI 
TaxTMI 
1960 (7) TMI 65
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....artners, Kumaraswamy, is a non-resident, and his share income was computed at Rs. 3,667 for the assessment year 1951-52 and Rs. 4,337 for the assessment year 1952-53. The Income-tax Officer took proceedings under section 34 of the Act after obtaining the prior sanction of the Commissioner and made orders of assessment on the firm under the second proviso to section 23(5)(a). In making these assessments, he calculated the tax payable by the application of section 17 of the Act, which provides for the levy of the tax at the maximum rate. The asseseee, the firm, appealed to the Assistant Commissioner of Income-tax and to the Tribunal unsuccessfully. Thereupon an application for reference was made with the result that the matter is now before us. It has been argued on behalf of the assessee that under section 23(5)( a), in the case of a registered firm, the share income of each partner of the firm is liable to be included in the total income of each partner and assessed ; and the sum payable by such partner has to be determined on the basis of such assessment. The argument proceeds that it is the total income of the non-resident partner that has to be determined for the purpose of t....
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....axable territories, his share of the income, profits and gains of the firm shall be assessed on the firm at the rates which would be applicable if it were assessed on him personally, and the sum so determined as payable shall be paid by the firm." Section 23(5) commences by saying : "Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be." It is clear from the wording of the prefatory part of the subsection that in the case of a firm, the total income of the firm has first of all to be determined. Sub-sections (a) and (b) lay down what consequences follow according as the firm is a registered or an unregistered one. Sub-section (5)(a) falls naturally into two parts. The first part deals with the case where all the partners of the firm are resident in the taxable territories, in which event the total income of the firm as assessed is not brought to tax but the total income of each partner of the firm including therein his share of such assessment is determined. In the latter part of the section covered ....
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....reference, and it has been found by the Tribunal that an application in this regard was made by the firm long after the due date. But the question for consideration in this connection is whether section I7(1)(a) was properly applied. It is true that section 17 refers to the total income of a non-resident, and since total income, according to the definition, would exclude the income which accrued or was derived from without the taxable territories, the argument is advanced that the incomes covered by this reference having arisen in Ceylon, and not having been received within the taxable territories, ought to be excluded. It seems to us that this argument must fail on a proper construction and upon a combined reading of section 23(5) and section 17. Section 17 deals with the special case of a non-resident, and provides that the tax payable by such non-resident should be calculated at the maximum rate. It is true that this section uses the expression "total income", but in the case of a non-resident, who is a partner of a resident registered firm, this expression "total income" should be construed in conformity with the determination of the taxable income of such non-resident partn....
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....eached by the taxing authorities. It seems to be for that reason that the levy of tax is made on the firm itself in respect of the share income of such non-resident partner at the rate at which such a non-resident would be liable to pay tax. This part of the provision of the proviso clearly brings section 17 into operation. It was argued by Sri Srinivasan for the assessee that the decision in Seth Badridas Daga v. Commissioner of Income-tax [1949] 17 ITR 209 (PC), relying upon which the income-tax authorities have made the assessments and the Tribunal had dismissed the appeals, does not apply to the facts of the present case. A careful reading of this decision, however, inclines us to the view, that the very point that has been raised by the assessee in this case demanding the exclusion of that portion of the income which arose outside the taxable territories, viz., the share income of the non-resident partner of the assessee firm, came in for examination by the Judicial Committee, and it was clearly held that a non-resident partner of the resident firm is not entitled to exclude from his total income such proportionate share of the profits of the said firm which accrued or aros....