COMMISSIONER OF INCOME TAX Vs. PHILLIP SEDDON MELLOR

JUDGEMENT

(1.) This is a reference by the Commissioner of Income Tax under Scetion 66(2) of the Indian Income Tax Act of 1922 in the matter of the assessment for super-tax of Mr. P.S. Mellor. The assessee was a partner in Messrs. P. Chrystal & Co., a registered firm. For the purpose of income tax for the year 1922-23 the basis of the assessment was the profits of the year ending September 30, 1921. During that year Mr. Mellor's share in the partnership was three-sixteenths. At the time of the assessment for the year 1922 23, namely December 6, 1922, the constitution of the firm had changed, and Mr. Mellor had become entitled to a three-eighths share. For the purpose of assessment for income tax, the change in the constitution of the firm made no difference. The firm was liable to pay income tax on the profits of the year ending September 30, 1921. If the firm had not been registered then it would also have been liable to pay super-tax under Scetion 55 of the Act, and consequently any new member who might have come into the firm since September 30, 1921, would be liable as a member of the firm to pay super- tax. But as the firm was registered, the firm as a firm had nothing whatever to do with the payment of super-tax by the individuals who constituted the firm. They would pay the super-tax on their total income for the year ending September 30, 1921. The Commissioner has decided that because Mr. Mellor's share in the firm at the time of assessment for the year 1922-23 was three-eighths, he was liable to be assessed for super-tax on three-eighths of the profits of the firm for the year ending September 30, 1921, although for that year his share was only three- sixteenths.

(2.) Under Scetion 56 the total income of an individual shall for the purpose of super-tax be the total income as assessed for the purpose of income tax. By Scetion 2(15) total income means the total amount of income, profits and gains from all sources computed in the manner laid clown in Scetion 16. That section only lays down that on computing the total income certain exemptions allowed. in previous sections shall be included, and dividends shall be increased by the amount of income tax payable by the Company concerned. In other words although under the exemptions tax is not payable by an asseesee on certain receipts which are included in the term income, profits and gains, those receipts must be included, while certain other receipts must be increased, when calculating the total income.

(3.) Under Scetion 14(2) an individual shall not be taxed in respect of such an amount of the profits or gains of any firm which have been assessed to income tax as is proportionate to his share of the firm. Mr. Mellor, therefore, when paying income tax for the year 1922-23 on his income for the previous year would exclude such an amount of the profits in the firm of P. Chrystal and Co., as was proportionate to his share in the firm. I should have thought it clear that he would exclude three-sixteenths of the profits and not three-eighths. But if the Commissioner's contention for the purpose of calculating super-tax were to be allowed it must also hold good for the purposes of calculating the amount to be excluded for the purposes of assessing to income tax.