COMMISSIONER OF INCOME TAX Vs. MAHINDRA M L

JUDGEMENT

(1.) THE facts of these two references are similar and a common question of law arises. Hence, this judgment will cover both these cases. In IT Ref. No. 12 of 1973, the following question of law has been referred by the Tribunal, Gauhati Bench, under s. 256(1) of the IT Act, 1961, hereinafter referred to as "the Act", to this Court for decision : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that only 40 per cent of the salary and interest payable to the assessee, Shri M. L. Mahindra, by the firm, M/s Amsoi Tea Estate, of which he is a partner, should be assessed to tax ?"

(2.) THE facts of this case may be briefly stated as follows : THE assessee, M. L. Mahindra, is a partner in the firm, M/s Amsoi Tea Estate, which derives income from a tea garden. His share of profit from the firm includes salary and interest. Since the salary and interest were received from the firm having income from the tea garden, the assessee claimed that 60 per cent of his salary and interest also should be exempted. THE assessee contended that since 60 per cent of the total income was to be exempted according to r. 8 of the IT Rules, 1962, and since his salary and interest were added back in computing the total income of the firm, he was entitled to exemption for the same reasons. THE ITO took the view that for the purpose of 60 per cent exemption of income from tea garden the income is to be computed as if it were income from business and since the word used is "business" and not total income, he did not accept the assessee's contention. He also took the view that after computing the income of tea garden and after exempting 60 per cent, necessary addition, such as, salary, interest and commission, etc., paid to partners, should be added back to the balance of 40 per cent of income so computed and on account of this reasoning the ITO rejected the assessee's claim for rectification under s. 154 of the Act in the asst. yrs. 1960-61, 1961-62, 1962-63, 1963-64, 1964-65 and, 1965-66, in respect of which separate assessment orders were passed.

(3.) ON the above facts the above mentioned question of law has been referred. In IT Ref. No. 25 of 1973, the Tribunal has referred the following question of law under s. 256(1) of the Act to this Court for decision : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order of the Addl. CIT that 100per cent of the salary and interest should be assessed in the hands of the firm and allocated for the purpose of arriving at the share income to be assessed in the hands of the partners ?"