COMMISSIONER OF INCOME-TAX, BIHAR versus RAMNIKLAL KOTHARI

Citation: [1969] 3 S.C.R. 860 · Decided: 07-03-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

860 
COMMISSIONER OF INCOME-TAX, BIHAR 
v. 
RAMNIKLAL KOTHARI 
March 1, 1969 
[J. C. SHAH AND ~- N. GROVER, JJ.] 
Income-tax Act (11 of 1922), s.r. 10(1) & (2), J6(1)(b) and 23(5) 
(a) (ii) Partnership carrying on business-Partner's lvhere determined-
Partner if further entitled to deductions under s. 10(2). 
The respondent was carrying on business in diverse lines as a partner 
in four different firms. 
For the assessment years 1955-56 and 1956-57 
he declared his share df pmfits from the four firms and claimed deductions 
made up of saJarv and bonus to staff. expense$ 
for 
maintenance and 
depreciation of motor-car, traveJiing expenses and interest. 
The Incbme-
tax Officer and the Appellate Assistant Commissioner allowed only the 
claim for interest as a permissible deduction. The Tribunal set aside the 
orders and remanded the cases for the two years for an examination of 
the nature of expenditure claimed to have been incurred by the respon~ 
dent. as, in its view, deductions admissible under s. 10(2) of the Income-
tax Act, 1922 were allowable in computing the taxable income of the 
respondent. 
On the question, whether expenses incurred by the respon-
dent (who wa·s not carrying on any independent business of his own), in 
carnin~ income from the various firms in which he wa~ a partner, were 
allowable in law as deductions, the High Court held in favour of the 
'respondent. 
Tn appeal to this Court, 
HELD: Section 23 (5)(a)(ii) of the Income-tax Act, 1922 provides 
that the share of the partner in the profits and gains of a registered firm 
shall be included in the total income of the partner. The share so received 
by the partner is 'profits and gains of business' earned on by him and is 
on that account liable to be computed under s. 10. The receipt being 
business income for the ourpose of s. 10(1) expenditure necessary for the 
purpose of earning that income and allowances appropriate under s. 10(2) 
are deductible therefrom in determining the taxable income of the partner. 
The facts that in computing the total profits of the partnership allowances 
admissible to the pcrtnership in the computation of its profits and gains 
were taken into acbount, in the manner provided by s. 10, or that s. 
16(1) (b) reauires that salary, i.nterest, commission or othe'r remuneration 
payable by the firm besides the share in the balance of profit is to be 
taken into account, do not imply that in determining the taxable income 
of the partner, expenditure incurred by the partner in earning the profits. 
salary, interest, commission or other remuneration is not to be allowed. 
[862 C-H] 
Shantikumar Narnttam Morarji 
v. 
Commissioner of Income-tax, 
Bombay Citv, 27 I.T.R. 69 . .Titmal Bhurama/ v. Commissioner of Income-
tax, Bihar & Orl<ro. 37 J.T.R. 528 and Basantlal Gupta v. Commissioner 
of Income-tax, Madras, 50 I.T.R. 541, approved. 
M/1. !JWardas Subhkaran v. Commf.r•ioner of lncom•-tax West Bengal, 
Jncome-tax Reference No. 38 of 1952 dated June 
2. 
1953, 
of the 
Calcutta Hi~h Court, disapproved. 
A 
B 
c 
D 
E 
F 
G 
H 
C.J.T. v. RAMNIKLAL (Shah, J.) 
861 
A 
CIVIL APPELLATE JURISDICTION : 
Civil Appeals Nos. 575 
B 
c 
D 
E 
r 
G 
H 
and 576 of 1966. 
Appeals by special leave from the judgment and order dated 
October 5, 1963 of the Patna High Court in Misc. Judicial Cases 
Nos. 1274 and 1275 of I 960. 
D. Narasaraju, S. K. Aiyar, R. N. Sachthey and B. D. Sharma, 
for the appellants (in both the appeals). 
M. C. Chagla and U. P. Singh, for the respondent (in both 
the appeals). 
The Judgment of the Court was delivered by 
Shah, J. The respondent Ramniklal Kothari carried on busi-
ness in diverse lines as a partner in four different firms. 
He re-
ceived from time to time income from the different registered firms 
as his share of profits. 
For the assessment year I 955-56 the respondent declared his 
share of profits from the four firms at Rs. 77,027 /- and he 
claimed an allowance of Rs. 13,283/- being payment of salary 
and bonus to staff, expenses for maintenance and depreciation of 
motor-car, travelling expenses and interest. The Income-tax Offi-
cer, Hazaribagh, allowed the claim for interest as a permissible 
deduction and disallowed the rest. In the view of the Income-tax 
Officer since the respondent did not carry on any independent busi-
ness, the amount, except interest, were not claimable by the res-
pondent on_ his own account; if at all, the amounts should have 
been claimed as business expenses i

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