The main legal point established in the judgment is the distinction between carrying on a profession and carrying on a business, and the deliberate purpose of the provision to exempt partnerships engaged in professions such as medicine from income aggregation under S.64(1) of the Income-tax Act.

1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question for decision of this Court under S.256 (1) of the Income-tax Act.

"Whether, on the facts and in the circumstances of the case, haying regard to the provisions of S, 64(1) of the income-tax Act, 1961, the Tribunal was justified in aggregating in the total income of the assessee the share income and the salary income derived by the assessee's wife from the firm M/S. K.T. C.M. Hospital in which the assessee and his wife were both partners?"

The question is common for the assessment years 1974-75,1975-76 and 1976-77.

2. The assessee and his wife are both doctors by profession and are partners of the firm by name M/s. K.T.C.M. Hospital. The firm is constituted of three partners with effect from 1-4-1959. The third partner is the assessee's father who is not a doctor by profession. The relevant Clause.1 to 13 of the partnership deed are extracted in the statement of the case forwarded to this Court by the Tribunal. We need advert only to the salient features of these clauses relating to the firm. The objects of the firm are for carrying on General Medical Practice including Surgery and for that purpose to run a medical dispensary and do all other activities conducive to the proper conduct of a pucca hospital. The assessee's father shown as first partner has invested capital for land, has contributed capital investments including land, buildings, equipments etc. The assessee and his wife being qualified doctors are to contribute their professional services for running the hospital. The assessee's father is in charge of the accounts and registers and other documents relating to the partnership. The firm is to be managed by the assessee and he will be in charge of all matters relating to the administration of the hospital. The assessee and his father are each entitled to 45 per cent of the net profits of the firm. The assessee's wife is entitled to the remaining 10 percent besides a fixed remuneration at the rate of Rs. 500/- per mensem.

3. The Income-tax Officer as per separate orders of assessment relating to the three assessment periods held that the firm is carrying on a business in which both the assessee and his wife are partners, and the income derived by the wife from the firm is to be aggregated with the income of the assessee under S.64 (1) (i) of the Act. The Appellate Assistant Commissioner held that the firm is not one carrying on business and S.64 (1) (i) cannot be applied to the facts of the case. In appeal at the instance of the Revenue, the Tribunal held that for the reason of joinder of the assessee's father as a partner of the firm, it cannot be said that the firm is one carrying on a profession. It would therefore fall under clause (i) of sub-section (1) of S.64 of the Act as a firm carrying on business and the share of income due to the wife including the remuneration received by her is to be aggregated with the income of the assessee for the purpose of computing his total income under the Act.

4. The finding of the Tribunal in Para.12 of its order relating to the three appeals before it is extracted below:

"If in the present case all the three partners were professional partners it was clear that the firm would be carrying on a profession ie. Profits earned by the partners, would be from carrying on of the profession. However, such is not the case here. One of the partners who was having share of 45 per cent (the assessee also having 45 per cent and his wife 10 per cent) was not a medically qualified person. The assessee, and bis wife were no doubt offering their professional and technical skill, but as described in Clause.5 of the deed and in our opinion correctly this was for carrying on the business of the firm. The surplus which resulted at the end of the year to the firm was not only attributable to the utilisation of the professional and technical skill of the assessee and his wife but derived from other facilities