LexRM. RAMANATHAN CHETTIAR ETC. versus COMMISSIONER OF INCOME TAX, MADRAS
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
A
B
c
D
E
F
G
RM. RAMANA TIIAN CHETIIAR ETC.
v.
COMMISSIONER OF INCOME TAX, MADRAS
April 30, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J
465
Jncome-ta:c Act (1922) ss. 4(1) (c) and 23(5)(a) second proviso--
Share of income derived outside taxable territories by firm included in
income of non-resident partner-If can be excluded under s. 4(l)(c).
The appellant was a non~resident individual.
He was a partner of a
registered resident firm which carried on money-lending business in India
and Malaya. The entire income of the firm for the assessment year 1956-
57 accrued outside India.
Since
before
the Finance Act, 1956, under
s. 23(5)(a) of the Income-tax Act, 1922, the firm did not itsel'f pay the
tax on its income, but each partner's share in the firm's profits was added
to his other income and the tax was payable by each partner on the basis
of his total income, the assessee's share of the foreign income of the
firm was included in his total income. The assessee claimed that it could
not be so included under s. 4(1) ( c).
HELD: Under sc 4(1) (c) when a person was not resident in the
taxable territory income derived by him outside the tjlxable territories was
not to be included in his taxable income.
But under s. 4(1)(c) a non-
resident partner of a resident firm was not entitled to exclude from hi•
total income such proportionate share of the profits of the said firm which
accrued or arose to it outside the taxable territories, and which \\'as in ..
eluded in the total income of the partner under s. 23(5) for the purpose
of assessing the fi'rm, since s. 4 is "subject to the provisions of this Act"
that is, subject to s. 23(5) (a). [466 F-H; 467 C·E]
Seth Badri Da.t Daga & Anr. v. Commissioner of lnco1ne-tax, Central
and Unired Provinces, 17 l.T.R. 209, applied.
Gnanam & Sons V. Commissioner of Income.tax, Madras, 43 I.T.R.
485, approved.
C1v1L APPELLATE JURISDICTION : Civil Appeal No. 710 of
1967.
Appeal by special leave from the judgment and order dated
June 30, 1965 of the Madras High Court i;n Tax·Case No. 114 of
1962.
K. Srinivasan and T. A.•Ramachandran, for the appellant.
Jagadish Swarup, Solicitor-General, G. C. Sharma and B. D.
Sharma, for the respond.!nt.
H
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave against a judge~
ment of the Madras High Court rendered if' its advisory jurisdic-
'. -··-
466
.SUPREME COURT REPORTS
[1971] l S.C.R.
tion in a case stated unders s. 66(1) of the Income-tax Act, 1922,
hereinafter referred to as the "Act".
The appellant was a non-
resident individual.
During the previous year ending April
12,
1956 relevant to the assessment year 1956-57, he was a partner
of a registered resident firm which carried on me, .ey lending busi-
ness in India and Malaya.
The entire income of that firm for the
assessment year in question accrued outside India.
The appel-
lant's share in the income of the firm came to Rs. 62,612/-
the
whole of which was foreign income.
The appellant had also in-
curred a loss of Rs. 8,484/- in his own business at Madras. While
assessing-the appellant the Income-tax Officer set off the loss in the
a.ppell".nt's Mauras business against the foreign income and assess-
ed him at the maximum rate as the appellant had not filed a decla-
ration in terms of the proviso to s. 17 (I). The Appellate Assis·
tant Commissioner confirmed the assessment.
An appeal was
taken to the Appellate Tribunal but it failed.
Two questions of
Jaw were referred by the Tribunal :
( 1) "Whether the assessment made on the assessee.
A
B
c
a non-resident, by including in his total income
D
his share of foreign income of the resident firm
of Messrs. K. V. Al. Rm. Rm. Ramanathan
Chettiar, is valid in Jaw ?
(2) Whether the levy of the tax at the maximum rate
is correct ?'.'
;
The High COU£.t answered the questions
referred against
the
assessee on the11ground that the points were covered by its previous
decision in Gnanam & Sons v.
Commissioner of income-tax,
Madras(').
The argument which was raised before the Madras High Court
in the above case ( Gnanam & Sons) was based largely on a read-
ing of two provisions of the Act.
Under s. 4(1 )(s;) when a
person was not resident in the taxable territories the income, pro-
fits and gains which accrued or arose to him without the taxable
territories were· not to be included in his "taxable income" unless
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