1. The following questions of law ware referred to the High Court under Section 666(1) of the Income-tax Act, 1922:
“(i) Whether the shares of profit of the assessee in firm of Messrs S.B Billimoria & Co. in the accounting year 1942 should be included in the total income of the assessee for ascertaining the rates of income-tax applicable?
(ii) If so, whether such share should be taken at the sum of Rs. 41,000 (or Rs. 28,684)?
(iii) Whether so far as super-tax assessment is concerned the correct figure of share of income to be added both for assessment and rate purposes of Rs. 41000 or Rs. 23,684?
2. Chagla, C.J:— The assessee Mr. N.M Raiji was a partner in the firm of S.B Billimoria & Co. from 1923 onwards. The partnership was dissolved, as a result of a consent decree passed by the High Court of Bombay, as from 9th October, 1942, and Raiji ceased to be a partner from that date. In the assessment of the assessee for the year 1943–1944, he showed as his personal income Rs. 6635. As a result of the consent decree, the share of the assesses in the firm from 1st January 1942, to 9th October, 1942, was determined at Rs. 41,000. By reason of Section 25(4) of the Income-tax Act, the firm of S.B Billimoria & Co. was not charged to any tax in respect of the period lat January 1942 to 9th October, 1942, and the Department concedes that on the sum of Rs. 41,000 received by Mr. Raiji no tax is payable. But what the Department contends is that the sum of Rs. 41,000 must be included in the total income of Mr. Raiji for the assessment year 1943–1944 in order to determine the rate at which income-tax is payable by him. That is the first question that is submitted to us and which we have to decide.
3. Now, the scheme of the Income-tax Act is that income, profits and gains of an assessee are liable to tax subject to certain exemptions and exceptions. Although certain sums may be exempted from taxation, still they may form part of the total income of an assessee in order to determine the rate at which income-tax is payable. Therefore, it follows that the total income of an assessee is not necessarily wholly subject to tax. Portions of it may be exempt from taxation and yet may be computed for the purpose of determining the rate at which tax is payable. Mr. Joshi's contention is that all sums which are exempted from taxation must still be brought into the total income of the assessee for the purpose of determining the rate at which income-tax is payable, except where the statute in terms excludes these sums from the total income of the assessee. It is pointed out that in S. 4, sub-s. (3), certain incomes, profits or gains falling within the classes mentioned in that sub-section are not to be included in the total income of the person receiving the income, and Mr. Joshi argues that except in these cases, in every other case, although the tax is not payable ob certain sums, they must be included in the total income for the purpose of determining the rate. It is, therefore, argued that although under S. 25(4) an exemption is given to the assesses because there is a succession to the business carried on and no tax is payable by the assessee, the sum which is exempted under this sub-section does form part of the total income for the purpose of determining the rata. Total income is defined in Section 2(16) of the Acts and it means total amount of income, profits and gains computed in the manner laid down in this Act. Therefore, it would be erroneous to suggest that total income is to be determined only in the light of S. 4, sub-s. (8) of the Act. How total income is to be computed and determined depends upon the various provisions contained in the Act as a whole. Then we might look at various sections which provide for exemptions from the payment of tax. There is S. 7 which contains various promises which cover sums not liable to tax. Similarly S. 8. Section 14 also contains exemptions with regard to certain sums on which no tax is payable, and S. 16 contains exemptions in cases of life insurance. It will be noticed that the language used in all these sections, to which I have referred, is similar, if not identical with she language used in S. 25(4), viz., that the tax is not payable on these different sums. Now, if Mr. Joshi's contention was sound, then with regard to these various exemptions which I have enumerated, although tax is not payable, they should all be included in the total income for the purpose of determining the rate payable in respect of income-tax. Now, the short and con-elusive answer to that contention is Section 16 of the Income-tax Act. It is that section which in terms includes in the total income of an assessee only certain sums which are exempted from the payment of tax. Therefore, by implication, where the sums are not included in the total income by S. 16, those sums are not only exempted from the payment of tax, but they are also excluded from the total income. Now, when we look at S. 16, it does not include the sum covered by S. 25(4) as a sum which it to be included in the total income of the assessee. The scheme, therefore, of the Income-tax Act is clear and is very different from what Mr. Joshi suggests it is. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption and exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but it is also not to form part of the total income for the purpose of determining the rate. When the Legislature intends that certain sums, although not liable to tax, should be included in the total income, it expressly so provides, as it is done in S. 16, and, therefore, prima facie when we come to S. 25(4) and when we find that the assessee is not liable to pay tax on the sum received by him as his share of the partnership, that sum cannot and does not form part of his total income. Mr. Joshi has not succeeded in pointing out to us any provision in the Act whereby this particular sum covered by S. 25(4) has been made a part of the total income of the assessee. Therefore, in my opinion, the share of the profit of the assessee in the firm of S.B Billimoria & Co. in the accounting year 1942 cannot be included in the total income of the assessee for ascertaining the rate of income tax.
4. The other question to be considered is whether the assessee is liable to pay any supertax in respect of his share in the partnership. Under the proviso to sub-s, (4) of S. 25, it is expressly provided that sub-ss. (3) and (4) shall not apply to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on 1st April 1920, or for the year beginning on 1st April 1921. It is not disputed that the income, profits and gains of this partnership were not assessed to super-tax on 1st April 1940, or for the year beginning on 1st April 1941, and therefore, apart from anything else, as the proviso stands, there would be a liability upon the assessee to pay super-tax. Mr. Kolah has attempted to raise a very ingenious and a very interesting argument that there is no liability whatever on the assessee to pay any super-tax whatsoever. I am afraid, it is not open to Mr. Kolah to raise that contention in view of the form in which the question has been raised for our determination. The question that we have to answer is whether so far as super-tax assessment is concerned the correct figure of share of income to be added both for assessment and rate purposes is Rs. 41,000 or Rs. 28,684.
5. The very question assumes and admits that there is a liability on the assessee to pay super-tax. The only question which is in dispute is on what amount super-tax should be paid, and therefore, however interesting the question may be, we refuse to be drawn into a controversy as to the correct position in law as to the liability of the assessee to pay any super-tax. The dispute as to the two amounts arises in this way. According to the partnership deed, the share of the assessee at the date of the dissolution would have amounted to us. 28,686. In fact, under the consent decree passed in this Court, he received Rs. 41,000. It is difficult to understand how the sum of Rs. 28,686 is in any way material or relevant when in fact, and as his share in the partnership, the assessee received Rs. 41,000. Mr. Kolah has tried to suggest that Rs. 41,000 may have been made up of his share as mentioned in the partnership deed, plus amounts for other considerations. But that was not the case of the assessee before the Tribunal, nor is there any finding to the effect that Rs. 41,000 represents anything less than the share of the assessee in the partnership. Under the circumstances, if the assessee is liable to pay super-tax—and, as I have pointed out, that is not disputed on this reference—then the super tax that he hag got to pay is not on Rs. 28,636 but on Rs. 41,000.
6. I would, therefore, answer the questions as follows: (i) In the negative, (ii) Does not arise, (iii) Rs. 41,000. There will be no orders as to costs in the reference. No order on the motion. No order as to costs.
7. Tendolkar, J.:— I agree.
8. Answers accordingly.