Judgment

SHAH, J.: The respondent Ramniklal Kothari carried on business in diverse lines as a partner for four different firms. He received from time to time income from the different registered firms as his share of profits.

2. For the assessment year 1955-56 the respondent declared his share of profits from the four firms at Rs. 77,027 and he claimed an allowance of Rupees 13,283 being payment of salary and bonus to staff, expenses for maintenance and depreciation of motor-cars, travelling expenses and interests. The income-tax Officer, Hazaribagh, allowed the claim for interest as a permissible deduction and disallowed the rest. In the view of the Income-tax Officer since the respondent did not carry on any independent business, the amounts, except interest, were not claimable by the respondent on his own account, if at all, the amounts should have been claimed as business expenses incurred in the accounts of the four firms.

3. For the assessment year 1956-57 the respondent declared Rs. 53,540 as his share of the profits in the four firms and claimed an aggregate amount of Rs. 19,380 as admissible deduction on various grounds including Rs, 1,956 as interest paid by him. The Income-tax Officer allowed the claim for interest and disallowed the rest of the claim.

4. The Appellate Assistant Commissioner confirmed the orders of the Income-tax Officer. But the Income-tax Appellate Tribunal set aside the orders passed by the Income-tax Officer and remanded the cases for examination of the nature of expenditure claimed to have been incurred by the respondent. In the view of the Tribunal share of the profits received by the respondent from the firms was taxable as business income, and appropriate deductions admissible under Section 10 (2) of the Income-tax Act, 1922, were allowable in computing the taxable income of the respondent.

5. The Tribunal then referred the following question in the two cases to the High Court of Patna for opinion under Section 66 (1) of the Indian Income-tax Act, 1922 :

"Whether the expenses incurred by the assessee (who was not carrying on any independent business of is own), in earning income from various firms in which he was a partner are allowable in law as deductions?"

The High Court of Patna answered the reference in favour of the respondent. With special leave granted by this Court, these two appeals have been preferred by the Commissioner of Income-tax.

6. Where a person carries on business by himself or in partnership with others, profits and gains earned by him are income liable to be taxed under Section 10 of the Indian Income-tax Act, 1922. Share in the profits of a partnership received by a partner is "profits and gains of business" carried on by him and is on that account liable to be computed under Section 10, and it is a matter of no moment that the total profits of the partnership were computed in the manner provided by Section 10 of the Income-tax Act an allowances admissible to the partnership in the computation of the profits and gains were taken into account. Income of the partnership carrying on business is computed as business income. The share of the partner in the taxable profits of the registered firms liable to be included under Section 23 (5) (a) (ii) in his total income is still received as income from business carried on by him. Counsel for the Commissioner accepted, and in our judgment counsel was right in so doing, that the share of the respondent from the profits of the firms was income from business carried on by the partner. Business carried on by a firm is business carried on by the partners. Profits of the firm are profits earned by all the partners in carrying on the business. In the individual assessment of the partner, his share from the firm s business is liable to be taken into account under Section 10 (1). Being income from business, allowances appropriate under Section 10 (2) are admissible before the taxable income is determined.

7. Section 23 (5) (a) (ii) provides tha