GOPIKISHAN AND RAMKISHAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE reference raises a rare question as to the allocation of the components of the total income of a registered firm as between the partners, on the one hand, and the minors admitted to the benefits of the partnership, on the other. The allocation, as made by the ITO, was for the asst. year 1966 -67.

(2.) THE claim of the assessee -firm was that the allocation in the agreed ratio of Re. 0 -7 -0 to Jhaver, Re. 0 -4 -6 to Daga and Rs. 0 - 4 -6 to the three minors must be done only after first setting off the business loss and the speculation loss in the sums of Rs. 16,34,707 and Rs. 14,97,112, respectively, as against the income under other sources amounting to Rs. 6,96,683. The ITO rejected this scheme of allocation propounded by the assessee and adopted the one set out in the table given above. On appeal, the Tribunal confirmed the decision of the ITO. The Tribunal referred to S. 67(2) of the IT Act, 1961, and held that the section forbids any allocation as between the partners otherwise than strictly in accordance with the components of the total income of the firm. Against the Tribunal's decision aforesaid, the assessee has obtained a reference on the following question :

(3.) THIS provision insists that the share income of a partner to be dealt with as part of his individual assessment, is not a head of income in itself, but is really a share of the components of the total income of the firm in which the partner has a share. If, for instance, the firm has income under several heads such as, business, property income, securities and other sources, then the aliquot share of each partner in the firm's income will have to be reckoned in accordance with the share of that partner under the partnership instrument in each and every one of the heads of income. This would be true in cases where all the partners are adult partners. The same rule applies to the allocation of loss computed in the hands of the firm. The share of loss of each partner under each head must be separately allocated to each partner