COMMISSIONER OF INCOME TAX Vs. AMSOI TEA ESTATE

JUDGEMENT

(1.) :-

(2.) SINCE the Division Bench which heard this matter in the first instance was of the opinion that it involves a point of law of considerable importance, it has been referred to this Bench. This is a reference under the Income-tax Act. The assessee is a registered firm having two partners, Shri M. L. Malpani and Shri M. L. Mahindra. The firm was deriving income from sale, cultivation and manufacture of tea. The Income-tax Officer computed the income of the firm for the assessment year 1962-63 at Rs. 58,486/- and under R. 8 of the Income tax Rules, 1962 40% of this income was made taxable under the Income-tax Act. The Income-tax Officer, while allocating the share of the income between the partners allocated 100% of the salary and interest to the partners and thus arrived at the share income of the two partners which totalled up to 100% of the firm's income and not merely 40% which was taxable. In appeal the Appellate Assistant Commissioner took the view that only the income which was taxable to income-tax could be allocated and that only 40% of the salary and interest had to be considered while allocating the profits of the firm among the partners. The Appellate Tribunal followed the Full Bench decision of the Madras High Court in R. M. Chidambaram Pilial v. Commissioner of Income-tax, Madras in 77 ITR 494: (AIR 1970 Mad 497) and agreed with the Appellate Commissioner that only 40% of the salary and interest should be allocated for the purpose of arriving at the share income of the partners. On the above facts the following question has been referred to this Court-

(3.) SUBSEQUENT to the hearing of the arguments it has been brought to our notice by the learned counsel for the respondents that the abovesaid decision of the Madras High Court has been affirmed by the Supreme Court in Civil Appeals Nos. 17 to 21 of 1972 (Commissioner of Income-tax, Madras v. R. M. Chidambaram Pillai etc.) decided on 17-11-1976 (reported in 1977 Tax LR 214). The learned counsel were heard again.