Lord Reid.-The appellants in this case were, during the material time, partners of the firm of Rai Bahadur Bansilal Abirchand which carried on business both within British India and elsewhere. Each appellant had a quarter share in the firm. The firm was a registered firm resident in British India within the meaning of the Indian Income-tax Act. The first appellant was not ordinarily resident and the second appellant was not resident in British India within the meaning of that Act. A considerable part of the firm’s income arose or accrued outside British India and was not brought into or received in British India. The question in the present case shortly stated is whether the appellants are bound to include in their total incomes for the purpose of Indian Income-tax the whole of their shares of the firm’s income or whether they are entitled to exclude a proportion of those shares corresponding to the proportion of the firm’s income which arose or accrued outside British India.

The appellants were assessed to income-tax for the year 1939-40 by the Incometax Officer, Nagpur, in amounts which included the whole of their shares of the firm’s income for the previous year. They appealed unsuccessfully to the Appellate Assistant Commissioner of Income-tax, Agra. They then appealed to the Incometax Appellate Tribunal (Bombay Bench). This appeal was also unsuccessful and the appellants requested the Tribunal to state a case for reference to the High Court. The Tribunal made a joint reference to the High Court of Judicature at Nagpur by stating one case which covered the appeals of both appellants. The questions referred to the High Court were:

"(1) Where the total income of a resident and registered firm of Rai Bahadur Bansilal Abirchand has been computed by including in it income, profits and gains accruing or arising to it without British India in accordance with the provisions of section 4(1)(b) of the Indian Income-tax (Amendment) Act, 1939, and is thereafter apportioned among its partners for inclusion in their individual assessments under section 23(5)(a) of the Act, whether Seth Badridas Daga, who is a ‘resident but not ordinarily resident’ partner of the resident firm, is entitled to treat his proportionate share of the profits so included as profits accruing or arising to him outside British India so as to entitle him to the benefit of the second proviso to section 4(1) of the Act?

(2) Where the total income of a resident and registered firm of Rai Bahadur Bansilal Abirchand has been computed by including in it income, profits and gains accruing or arising to it without British India in accordance with the provisions of section 4(1)(4) of the Indian Income-tax (Amendment) Act, 1939, and is thereafter apportioned among its partners for inclusion in their individual assessments under section 23(5)(a) of the Act, whether Seth Ramnath Daga, who is a ‘non-resident’ partner of the resident firm, is entitled to exclude from his total income such proportionate share of the profits of the said firm which accrue or arise to it without British India, under section 4(1)(c) of the Act?"

On 11th February, 1944, the High Court at Nagpur made an order1 answering both these questions in the negative. The present appeal is against that order, leave to appeal having been granted by order of the High Court dated 25th October, 1945.

The decision of this case depends on the interpretation of certain sections of the Indian Income-tax Act, including amendments made by the Indian IncomeTax (Amendment) Act, 1939, and earlier amending Acts.

It will be convenient to begin with section 23 which deals with assessment. Some confusion arises from the. fact that in the Act the words "assessment" and "assessee" are used in different places with different meanings. Section 2(2) defines "assessee" as "a person by whom income-tax is payable," but the context In section 23 makes it clear that down at least to the middle of sub-section (5)(a) "assess" and "assessm