FATEHCHAND MURLIDHAR AND ANR versus COMMISSIONER OF INCOME-TAX, CALCUTTA

Citation: [1966] SUPP. 1 S.C.R. 453 · Decided: 19-07-1966 · Supreme Court of India · Bench: K.N. WANCHOO · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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FATEHCHAND MURLIDHAR AND ANH • 
v. 
COMMISSIONEH OF INCOME-TAX, CALCUTTA 
July 19, 1966 
[K. N. WANCHOO ANDS. M. S!KRI, JJ.] 
Income-tax Act (11 of 1932), s. 23(5)(a:-Scope of-Partnership-
Sub-partnership between a pa.rtner and strangers-Agreement-to 
share profits and loss~s of partner in the Partnershqr--Income from 
the Partnership-Whether belongs to partner or sub-partnership. 
The assessee was a partner in a registered firm. In 1949, he 
entered into a partnership with persons v.rho \vere strangers to the 
registered firm and a deed of partnership was executed between them. 
It recited that the profits and losses for the share of the asscssce in 
the registered firm should belong to the new firm and be divided and 
borne by the partners of the new firm in accordance with the shares 
specified in the deed. 
On the question whether the income of the assessee from the 
registered firm for the years 1952-53, 1953-54 and 1955-56, should be 
jncluded in his individual assessment, 
HELD: The income should be included in the assessment of the 
new firm and not in the personal assessment of the assessee. 
(i) The new partnership constituted a sub-partnership in respect 
of the assessee's share in the registered firm. Tn the case of a sub-
partnership, it creates a superior title and d1verts the lncome before 
it becomes the inoome of the partner, that is, the partner in the main 
firm receives the income not only on his o\vn behalf but on behalf 
of the partners in the sub-partnership. The fact that a sub-partner 
can have no direct claim to the profits vis-a·vis the other partners 
of the main firm and that it is the partner alone who is entitled to 
the profits vis-a-vis the other partners in the main firn1, 
does not 
show that the changed character of the partner should not be taken 
into consideration for income-tax purposes. r461E-F; 462Cl 
Iii) The object of s. 23(5)(a) is not to assess the firm itself but to 
apportion the income among the various partners. After the income 
has been apportioned, the Income-tax Officer has to find whether it 
is the partner who is assessable or whether the income should be 
taken to be the real income of some other person. If it is the real 
income of another firm, it is that firm which is liable to be assessed 
under the section. There is nothing in the section that prevents the 
income of the assessee from the registered firm being treated as the 
income of the sub-partnership and the section being applied again. 
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r463C, Fl 
Charandas Haridas v. Commissioner of Income Taa:, 
S.C.R. 296, and Commissioner of Income Tax, 
Bombay v. 
Tirathdas [19611 3 S.C.R. 634, followed. 
[1960] 3 
Sitaldas 
Commissioner of Income Ta~-:c, Punjab v. Laxmi Trading Co. 24 
I.T.R. 173 and R.rititat 13. Daftari v. Commissioner of Income Ta.x, 
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Bombay, 36 I.T.R. 18, referred to. 
Mahaliram Santhatia v. Commissioner of Income Tax 33 I.T.R. 
261, overruled. 
SUPllElfE COURT REPORTS 
tJ 966) ~Ul'P. S.tJ,11, 
CIVIL APPELLATE JuRJsDICTION: Civil Appeal Nos. 1108 to A 
1110 of 1964. 
Appeals by special lea.ve from the judgment and order dated 
August I, 1962 of the Calcutta High Court in Income-tax Refer-
ence Nos. 20 and 21 of 1959. 
A. K. Sen, S. C. Mazumdar and J. Dalla Gupta. for the 
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appellants. 
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R. M. /lazarnavis, R. Ganapathy Iyer and R. N. Sac!tthey, 
fo! the respondent. 
The Judgment of the Court was delivered by 
Sikri, J. These appeals by special leave are directed against 
the judgment of the High Court of Calcutta in two cases referred 
to it by the Income Tax Appellate Tribunal, Calcutta Bench, 
under s. 66(1) of the Indian Income-tax Act !XI of 1922) herein-
after called the AcO. One of the references (income Tax Reference 
No. 20 of 1959) was made at the instance of Mis Fatehchand 
Murlidhar, and the other (income Tax Reference No. 21 of 1959) 
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was made at the instance of Shri Murlidhar Himatsingka. ·In the 
former reference the question referred was "whether on the facts 
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and in the circumstances of the case, the income of Murlidhar 
Himatsingka for his share in the firm of Messrs. Basantlal Ghan-
;hyamdas for the assessment years 1952-53 
and 
1953-54 
was 
rightly excluded from the income of the applicant firm". In the 
latter reference the question referred was "whether on the facts 
and circumstances of the case the income of Murlidhar Himat-
singka for his share in the firm of Messrs. Basantlal Ghanshyam

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