20 October 1964
Supreme Court


Case number: Appeal (civil) 817 of 1963






DATE OF JUDGMENT: 20/10/1964


CITATION:  1965 AIR 1343            1965 SCR  (1) 758  CITATOR INFO :  D          1968 SC  75  (8)

ACT: Income-tax  Act,  (11 of 1922), ss. 3  and  4-Trading  firm- Profits of individual partners-Time of accrual.

HEADNOTE: The assessee was a Hindu undivided family.  Its manager  was a partner in a firm and the family was entitled to his share of the profits.  The partnership agreement provided that the accounts of the firm should be adjusted every calendar year, that is, on the 31st December of each year.  On November 12, 1955,  by a deed of partition, the family and  its  property were  divided  and it was declared that the  manager  became exclusively entitled to the profits in the partnership  from 1st  January 1955.  In proceedings for assessment for  1955- 56,  the corresponding previous year for the assessee  being 27th  October  1954  to 14th November  1955,  the  assessees contended  that the share in the profits of the  partnership should  not  be included in its taxable income  because  (i) under the partition deed the profits belonged to the quondam manager  exclusively from 1st January 1955 and,  (ii)  since the  partnership  made  up its accounts at the  end  of  the calendar year, the assessee had no interest in the share  of the profits which accrued exclusively to its quondam manager at the end of the year.  The Income-tax Officer rejected the contentions.   The Appellate Assistant Commissioner and  the Appellate Tribunal held that since there was a disruption in the family only on 12th November 1955, the profits had to be apportioned between the assessee and its manager.  The  High Court  on  a  reference,  held in  favour  of  the  assessee accepting the second contention.  The Commissioner  appealed to the Supreme Court. HELD  : The profits accrued to the quondam manager  only  on 31st   December  1955,  though  they  were  the  result   of transactions  spread over the entire period of the  calendar year 1955.  Since on that date the assessee had, because  of the  partition deed, no interest in the profits or any  part thereof, the assessee was not liable to pay any tax on those profits. 1766 C-D; 769 D-E] In  the gross receipts of a business day after day  or  from



transaction to transaction lie embedded or dormant profit or loss.  On such dormant profits or loss, undoubtedly, taxable profits,  if  any, of the business Will  be  computed.   But dormant  profits  cannot  be equated  with  accrued  profits charged  to  tax under ss. 3 and 4 of  the  Income-tax  Act, 1922.   The  concept  of accrual of profits  of  a  business involves  the determination by the method of  accounting  at the  end  of  the  accounting year  or  any  shorter  period determined  by law; and unless a right to the profits  comes into existence, there is no accrual of profits.  In the case of  a partnership, where, by a covenant binding between  the parties,  the accounts are to be made at  stated  intervals, the  right of a partner to demand his share of  the  profits does  not  arise until the contingency  under  the  covenant which gives rise to that right, has arisen. [762 E-F; 765 H, 766 A] E.   D.  Sassoon & Co. Ltd., v. Commissioner of  Income-tax, Bombay City, [1955], 1 S.C.R. 313, followed. In re : The Spanish Prospecting Co. Ltd. [1911] 1 Ch. 92 and Bhogilal  Laherchand v. Commissioner of  Income-tax,  Bombay City, 28 I.T.R. 919, referred to. 759 Turner  Morrison & Co. Ltd. v.  Commissioner of  Income-tax, West Bengal [1953] S.C.R. 520 and Dulichand Laxminarayan  v. Commissioner  of  Income-tax,  Nagpur,  [1956]  S.C.R.  154, explained.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 817 of 1963. Appeal  from the judgment and order dated April 17, 1961  of the Gujarat High Court in I.T.R. 21 of 1960. K.   N.  Rajagopal Sastri, R. H. Dhebar and R.  N.  Sachthey for the appellant. The respondent did not appear. The Judgment of the Court was delivered by Shah  J.  The respondent was a Hindu undivided  family  con- sisting  of Ashokbhai-the manager-his wife Shobhana and  his minor son Chirag.  Ashokbhai was a partner in a firm  styled Messrs  Amrit Chemicals with a share of five annas in  every rupee in the profit and loss.  It is common ground that  the beneficial  interest in the profits of the firm  falling  to the  share  of Ashokbhai belonged to the  undivided  family. The  year of account of the Hindu undivided family  was  the Samvat  year-1st  of Kartika to 30th Ashwin.   The  year  of account  of  Messrs Amrit Chemicals was  the  calendar  year according to the Gregorian calendar. By deed dated November 12, 1955, the Hindu undivided  family was  disrupted, and the property of the family was  divided. The  following  are  the material clauses  of  the  deed  of partition:-               "4.  There  is joint family  property  of  the               joint  family of Seth Ashokbhai Chimanbhai  of               the  First Part.  Out of that we are making  a               partial   partition   of   the   property   as               hereinafter stated, particulars whereof are as               follows:-               (a)   in  the Partnership Firm in the name  of               the  Amrit Chemicals five annas share  out  of               sixteen annas in the rupee including  goodwill               together  with  the benefit and  liability  in               respect  of  the profit and loss  relating  to               five  annas share in a rupee of sixteen  annas



             made  by  the said firm from 1-1-1955  of  the               value of about Rs. 70,001.               8.    The   Partnership  Firm  of  the   Amrit               Chemicals has been in existence from  1-1-1946               and a deed of partnership dated 14-8-1946  has               been  made in respect of the said  partnership               and according to the said deed there               760               is a share of five annas in a rupee of sixteen               annas in the profit and loss of the said  Finn               in the name of Seth Ashokbhai Chimanbhai.               Seth Ashokbhai Chimanbhai has become the  full               owner of the said share henceforth and all the               rights under the said deed of partnership  are               to  be  enjoyed by Seth  Ashokbhai  Chimanbhai               party  of the First Part himself.   Similarly,               any  liability  under the said deed is  to  be               borne and discharged by Seth Ashokbhai Chiman-               bhai party of the First Part.               The account of the profit and loss of the said               partnership  Firm from 1-1-1955 remains to  be               made  up  and on the making of  such  accounts               whatever  profit or loss the partnership  Firm               may   have   made  thereout   Seth   Ashokbhai               Chimanbhai  shall be the full owner  and  res-               ponsible  for  a five annas share out  of  the               rupee of sixteen annas." In proceedings for assessment for 1955-56-the  corresponding previous year being October 27, 1954 to November 14, 1955the Hindu  undivided family-hereinafter called  "the  assessee"- contended  that the share in the profits of  Messrs.   Amrit Chemicals  for the calendar year which accrued on  or  after December  31, 1955 belonged to Ashokbhai in  his  individual capacity  and was not liable to be included in  the  taxable income  of the assessee, because it had been declared  under the  partition  deed to belong exclusively to  Ashokbhai  as from  January 1, 1955, and that in any event since the  firm made  up its accounts at the end of the calendar  year,  the assessee  had  no interest in the share of profits  for  the calendar year 1955 which accrued at the end of that year  to Ashokbhai  in  his  individual  capacity.   The   Income-tax Officer  ordered  that Rs. 21,051 received by  Ashokbhai  as five  annas share in the profits of the firm be included  in the  computation  of the total income of the  assessee.   In appeal  the  Appellate Assistant Commissioner held  that  on November  12, 1955 Ashokbhai ceased to represent  the  Hindu undivided family and the share of profits received from  the firm  had  to  be  apportioned  between  the  assessee   and Ashokbhai.   This  order  was confirmed  by  the  Income-tax Appellate Tribunal. The Tribunal submitted a statement of case on the  following question to the High Court of Gujarat:               "Whether  on  the facts and  circumstances  of               this  case the 5 annas share of the income  of               Amrit Chemicals               761               or  any part thereof for the year 1-1-1955  to               31-12-1955 accrued to the assessee and whether               it could be charged in its hands?" The  High  Court agreed with the  Revenue  authorities  that Ashokbhai  had become full owner of the five annas share  in Messrs  Amrit Chemicals with effect from November  12,  1955 and  not before, but upheld the alternative contention  that no  part of the share of profits which accrued to  Ashokbhai on December 31, 1955 was liable to be included in the income



of the assessee, because on the date of accrual the assessee had  no interest in those profits, and recorded  a  negative answer to the question referred. Ashokbhai  represented  the  assessee in  the  firm  Messrs. Amrit  Chemicals tiff November 12, 1955, and  thereafter  he became by virtue of the deed of partition the sole owner  of the  five annas share in the firm.  The beneficial  interest of  the assessee in the profits of Messrs.  Amrit  Chemicals therefore  ceased  only  on the execution  of  the  deed  of partition   and   not  before.   The   Appellate   Assistant Commissioner  and  the Tribunal held that the share  in  the profits  of  the  firm for the year 1955 was  liable  to  be apportioned  between  the  assessee  and  Ashokbhai  as   an individual the assessee being entitled to a fraction of  the profits  equal to the fraction which the period  January  1, 1955  to November 12, 1955 bears to the calendar year  1955. It  was  also  held  by the  Revenue  authorities  that  the settlement  of accounts of Messrs.  Amrit Chemicals did  not give rise to a debt due by a third person to Ashokbhai.  The argument  assumes that in the gross receipts. in respect  of any  trading  transaction carried on by an individual  or  a firm  lies  dormant  some element of  profit,  and  to  that element of profit attaches immediately the charge to tax and it  is  not  deferred till the date on which  profits  as  a result  of  the  transactions of  the  accounting  year  are ascertained  after  taking into consideration  the  business outgoings  at  the end of the year on  making  up  accounts. This argument raises an important question about the time of accrual of profits to individual partners in a trading firm. Do  the  profits in a trading venture carried on by  a  firm accrue  to the partners of the firm from day to day or  from transaction  to transaction, or when the accounts are  made, and  a  right  to  receive  the  profits  arises  under  the covenants of the deed of partnership?   Under  the  Income-tax  Act, income  is  taxable  when  it accrues,  arises  or is received, or when it is  by  fiction deemed  to  accrue,  arise  or is  deemed  to  be  received. Receipt is not the only test 762 of chargeability to tax; if income accrues or arises it  may become  liable to tax.  For the purpose of this case  it  is unnecessary  to dilate upon the distinction  between  income "accruing"  and "arising".  But there is no doubt  that  the two words are used to contradistinguish the word  "receive". Income is said to be received when it reaches the  assessee: when  the right to receive the income becomes vested in  the assessee,  it is said to accrue or arise.  Fletcher  Moulton L.J., in In re The Spanish Prospecting Co. Ltd. (1) observed at p. 98:               "The word ’profit’ has . . . . a  well-defined               legal meaning and this meaning coincides  with               the  fundamental  conception  of  profits   in               general   parlance;  although  in   mercantile               phraseology   the  word  may  at  times   bear               meanings  indicated  by  the  special  context               which  deviate  in  some  respects  from  this               fundamental  signification.  Profit implies  a               comparison between the state of a business  at               two  specific  dates usually separated  by  an               interval  of a year.  The fundamental  meaning               is  the  amount of gain made by  the  business               during the year.  This can only be ascertained               by  a  companion  of the  assets  at  the  two               dates."    In the gross receipts of a business day after day or from



transaction to transaction he embedded or dormant profit  or loss:  on  such dormant profit or loss  undoubtedly  taxable profits,  if  any, of the business will  be  computed.   But dormant  profits cannot be equated with profits  charged  to tax under ss. 3 and 4 of the Income-tax Act.  The concept of accrual of profits of a business involved the  determination by  the  method of accounting at the end of  the  accounting year  or any shorter period determined by law.   If  profits accrue  to  the  assessee directly  from  the  business  the question  whether  they accrue de die, in die in or  at  the close  of  the  year  of account has  at  best  an  academic significance,  but  when upon ascertainment of  profits  the right  of  a person to a share therein  is  determined,  the question assumes practical importance, for it is only on the right  to receive profits or income, profits accrue to  that person.  If there is no right, no profits will be deemed  to have  accrued.  This principle was applied by this Court  in E.D.  Sassoon & Co. Ltd.  V. The Commissioner of  Income-tax Bombay-City  (2).   The  material  facts  bearing  on   that principle  were  these:  E.D.  Sassoon  &  Co.  Ltd.--called ’Sassoons’ -were the managing agents of a Company which  may be called (1) [1911) 1 Ch. 92. (2) [1955] 1 S.C.R. 313. 763 "the   United  Mills"  and  were  entitled  to   receive   a percentage,  of annual net profits of the Company  as  their remuneration.   On  December 1, 1943  Sassoons  assigned  to Messrs.   Agarwal & Co. their office as managing agents  and all  their  rights and benefits under  the  managing  agency agreement.   Accounts  of  the  managing  agency  commission payable  to the managing agents for the calendar  year  1943 were  made up in 1944 and commission for the whole year  was paid  to Messrs.  Agarwal & Co., thereafter.  In the  course of assessment proceedings of Sassoons it was debated whether in respect of commission earned by the managing agency,  tax was  payable  on the entirety of the commission  by  Messrs. Agarwal  &  Co.  or  by Sassoons or it  ’was  liable  to  be apportioned  between  Messrs.  Agarwal & Co.  and  Sassoons. This  Court held (Jagannadhadas J. dissenting) that  Messrs. Agarwal  & Co. alone were liable to pay tax on the whole  of the  remuneration  received under the  contract  of  service between  the United Mills, because the managing  agency  was entire  and indivisible, and the remuneration or  commission fell  due  to the managing agents, only on completion  of  a definite period of service and at stated periods it being  a condition of recovery of wages or salary that the service or duty  should  be  completely  performed.   Remuneration   as managing agents constituted according to the Court "a  debt" only  at  the  end of each such period  of  service  and  no remuneration  or  commission  was payable  to  the  managing agents   for  broken  periods.   After  referring   to   the observations  of  Fletcher  Moulton  L.J.,  in  the  Spanish Prospecting  Co. Ltd.’s case(1) Bhagwati J.,  observed  that "it  would  be  absurd to suggest that the  profits  of  the company  could accrue from day to day or even from month  to month".   The working of the company from day to  day  could certainly not indicate any profit or loss, even the  working of  the company from month to month could not be taken as  a reliable guide for this purpose.  If the profit or loss  has to  be  ascertained  by a comparison of the  assets  at  two stated  points, the most businesslike way would be to do  so at  stated  intervals  of  one year  and  that  would  be  a reasonable  period  to be adopted for the purpose.   In  the case  of large business concerns the working of the  company



during  a particular month may show profits and the  working in  another  month may show loss.  The business  during  the earlier part of the year may show profit or loss and in  the later  part of the year may show loss or profit which  would go  to counterbalance the profit or loss as the case may  be in the earlier part (1)  [1911] 1 Ch. 92. 764 of the year.  It would therefore be reasonable to  determine the  profit or loss as the case may be at the end  of  every year so that on such calculation of net profits the managing agents  may be paid their remuneration or commission at  the percentage  stipulated in the managing agency agreement  and the  shareholders  also  be paid dividends out  of  the  net profits of the company.      Counsel   for  the  Commissioner  submitted  that   the judgment  in E.D. Sassoon Co. Ltd.’s case(1) proceeded  upon the special character of a managing agency agreement and did not  purport  to  lay down a general rule  that  accrual  of income  depends on quantification, or that right to  payment of an ascertainable amount does not arise till accounts  are made.  Counsel also submitted that in sale transactions of a trading   venture   profits  accrue  to  the   trader   from transaction   to  transaction  and  are  embedded  in   each transaction carried on by the trader, and the charge imposed by S. 4 (1) (a) is not deferred till settlement of accounts. On  that  premise,  counsel said, that  profits  dormant  or embedded  in the transactions carried on by  Messrs.   Amrit Chemicals  accrued  from  transaction  to  transaction  till November 12, 1955 and properly belonged to the assessee  and were  liable  to  be  taxed in the  hands  of  the  assessee notwithstanding any subsequent disposition of those  profits by  the  assessee.   In support of  his  contention  counsel relied  upon Turner Morrison & Co. Ltd. v.  Commissioner  of Income-tax,  West Bengal(1)-a case decided by  ’this  Court. In that case an Indian company received commission on  sales effected in India of goods received from a foreign  company. The  Indian Company handled the cargo arriving  at  Calcutta and  made disbursements in connection  therewith.  collected and  after  deducting expenses  including  their  commission remitted the balance to the foreign principal.  It was  held by  this  Court that the income, profits and  gains  derived from  sale of goods by the Indian Company in  British  India were assessable to tax under S. 4(1) (a) as income,  profits and gains received in the taxable territories by the company on behalf of the foreign principal.  The Court in that  case observed at pp. 529-530 :               "There  can,  therefore, be no  question  that               when the gross sale proceeds were received  by               the agents in India they necessarily  received               whatever income, profits and gains were  lying               dormant  or  hidden or otherwise  embedded  in               them.  Of course, if on the taking of accounts               it  be found that there was no  profit  during               the year               (1) [1955] 1 S.C.R. 313.               (2) [1953]S.C.R. 520.               765               then  the  question  of  receipt  of   income,               profits and gains would not arise but if there               were  income,  profits  and  gains,  then  the               proportionate part thereof attributable to the               sale proceeds received by the agents in  India               were  income,  profits and gains  received  by               them  at  the moment the gross  sale  proceeds



             were received by them in India and that  being               the  position the provisions of section 4  (1)               (a) were immediately attracted and the  income               profits   and   gains   so   received   became               chargeable to tax under section 3 of the Act." These  observations  were,  it  may  be  noticed,  made   in rejecting the contention raised by Counsel for the tax-payer that  in the gross sale proceeds received by him  in  India, there was no income at all.  Counsel for the Indian  company said  that the gross sale proceeds were merely credit  items in  the account and that several amounts were to be  debited in  the  same  account  and if  there  remained  any  credit balance,  such  balance alone could be regarded  an  stamped with  the  formal impress of income capable of  being  dealt with  as such: income could therefore be said to  have  been received  only at that stage.  The Court did  propound  that when  gross sale proceeds are received in which is  embedded income,  that income will enter the ultimate computation  of the total profits assessable to tax.  But that is not to say that the profits accrue or arise to a trader from day to day or from transaction to transaction.  The observation that to the income, profits and gains embedded in the gross receipts s. 4(1) was immediately attracted also does not warrant  the inference  that the Court intended to lay down that  profits accrue to a tax-payer before the right thereto has come into existence.   "Profits" as pointed out in E. D.  Sassoon  Co. Ltd.’s  case(1) do not accrue from day to day or  even  from month to month and have to be ascertained by a comparison of assets at two stated points.  The Court also pointed out  in that  case  that the test for ascertaining  whether  profits have accrued or arisen is whether the person who is entitled thereto has a right to claim the profits.    It is true that E. D. Sassoon Co. Ltd.’s case(1)  related to a managing agency transaction and the Court said that the managing   agency   being  "a  service  contract   one   and indivisible"  until  the entire contract  is  performed,  no right to remuneration arises.  But the principle of the case is  that  unless a right to profits  comes  into  existence, there  is no accrual of profits.  In the case of a  partner- ship, where by a covenant binding between the partners the (1)  11955] 1 S.C.R. 313. 766 accounts are to be made at stated intervals, the right of  a partner  to demand his share of the profits does  not  arise until  the contingency which by operation of law or under  a covenant  of the partnership deed gives rise to  that  right has  arisen.   In  the  present  case  by  cl.  11  of   the partnership  agreement  the accounts of the firm had  to  be adjusted every year, and accounts for the calendar year 1955 were not and could not be adjusted before December 31, 1955. By  the  covenant in the deed of partnership  Ashokbhai  was entitled  to receive the share of profits at the  time  when the accounts were adjusted.  Before the agreed date, he had, under  the deed of partnership, no right, unless  the  other partners agreed, to claim that the accounts be adjusted.  If the profits arose on the settlement of accounts on  December 31, 1955, Ashokbhai alone was the owner of those profits and the  assessee  had  no right therein.   Those  profits  were undoubtedly  the  result  of transactions  spread  over  the entire period of the calendar year 1955, but if the  profits did  not  arise  from  day to day  or  from  transaction  to transaction,  destination of the profits must be  determined by the title thereto on the day on which they arose.  If the assessee acquired no right in the share of profits  received by  Ashokbhai, the taxing authorities could not  claim  that



the profits should still be apportioned between the assessee and  Ashokbhai and tax should be levied on  the  apportioned income.   In  our judgment, income becomes  taxable  on  the footing of accrual only after the right of the tax-payer  to the  income  accrues  or  arises, and  in  the  case  of  an agreement  which  makes  profits receivable  at  or  on  the happening  of a contingency, the fact that the  profits  are the result of transactions spread over a period which covers a  period preceding the happening of that contingency  would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or became receivable.     Counsel  for  the Commissioner contend  that  under  the Indian  system of law a partnership is not a  body  distinct from  the members composing it and that whatever may be  the outlook of laymen concerning partnership, except for certain specific  purposes it is established that a firm is  not  an entity  or  person in law but is merely  an  association  of individuals,  a  firm name being only a collective  name  of those  individuals who have agreed to carry on  business  in partnership; and therefore when income accrued to, the  firm in  respect of each transaction it must be deemed to  accrue to the individual partners of the firm as well, and  accrual is  not postponed till the making up of  accounts.   Counsel relied upon 767 the   observations   made  by  this   Court   in   Dulichand Laxminarayan  v. Commissioner of Income-tax, Nagpur(1).   In Dulichand’s  case(2)  it  was held that  deed  evidencing  a partnership  of  which the partners were  an  individual,  a joint  Hindu family and three firms could not be  registered under  s.  26-A  of the Income-tax Act.  But  it  cannot  be inferred  therefrom that whenever the  partnership  receives gross  receipts  in respect of its business  transaction  in which  is embedded some profit or loss of  the  partnership, that  profit  or  loss  results  immediately  on  the  gross receipts reaching the partnership to the individual partners in  their aliquot shares.  Normally for profit to accrue  or arise,  there should be a right either under the statute  or under  contract  between  the  tax-payer  and  others  which entitles the former to make a demand for those profits.     Bhogilal Laherchand v. Commissioner of Income-tax Bombay City(2)  on which the High Court relied may be referred  to. In Bhogilal’s case (2) under a deed of partnership a  father carried on a business in partnership with his sons.  Two  of his  minor  sons  were  admitted  to  the  benefits  of  the partnership.   One of the minor sons named  Arvind  attained majority  on August 22, 1950, and a fresh  partnership  deed was  executed on August 28, 1950.  Under the partnership  de Id  as well as new-accounts were to be taken and the  profit or  loss  was to be ascertained on the Divali  day  of  each Samvat year.  Arvind died on August 31, 1950, and his  share in the profits as ascertained on August 31, 1950 was  sought to be added under s. 16 (3) of the Income-tax Act, 1922,  to the  income  of his father on the footing  that  the  amount constituted  income of a minor child of the  assessee  which arose from the admission of that minor child to the benefits of  the  partnership.   The Court held that  as  Arvind  had agreed  to  remain a partner after  attaining  majority  and under the terms of the partnership profit or loss was to  be ascertained  only  on the Divali day of each  year,  it  was impossible to predicate whether the partnership had made any profit  or loss, on any date prior to the date of Divali  in any year and as the right to receive a share of the  profits arose  on the death of Arvind the share of profit could  not



be  treated as income which arose directly or indirectly  to Arvind  during  his minority so as to make it liable  to  be included  under  s. 16(3) in the assessment of  the  father. Chagla  C.J.,  in  delivering  the  judgment  of  the  Court referred  to E. D. Sassoon Co. Ltd.’s case(3)  and  observed that though income may accrue or arise to an (1) [1956] S.C.R. 154. (2) (1955) 28 I.T.R. 919. (3) [1955] 1 S.C.R. 313. 768 assessee  before  he  actually receives  it,  income  cannot accrue or arise to him until he acquires a right to  receive it;  and unless and until there is created in favour of  the assessee  a debt due by somebody, it cannot be said that  he has acquired a right to receive the income.  In so  holding, the learned Chief Justice quoted a passage from the judgment of  Bhagwati J., in E. D. Sassoon Co. Ltd.’s case(1) to  the effect  that "income may accrue to an assessee  without  the actual  receipt  of the same.  If the  assessee  acquires  a right to receive the income, the income can be said to  have accrued to him though it may be received later on its  being ascertained.   The  basic conception is that  he  must  have acquired  a  right to receive the income.  There must  be  a debt owed to him by somebody.  There must be as is otherwise expressed  debitum in praesenti, solvendum  in  futuro...... Unless and until there is created in favour of the  assessee a  debt  due  by  somebody it cannot be  said  that  he  has acquired  a right to receive the income or that  income  has accrued to him".    It was urged by Counsel for the Commissioner that between the  partners collectively and individual partner there  can be  no relation of a debtor and creditor and  therefore  the principle  enunciated  by this Court in E.  D.  Sassoon  Co. Ltd.’s  case(1) has no application to cases where a  partner receives  his share of the profits of the firm on making  up the account of the partnership.  But the principle of E.  D. Sassoon Co. Ltd.’s case 11 is that income accrues or  arises when  a right thereto comes into existence and  not  before. If  that  be  the correct ratio, and we  think  it  is,  the argument  that  a partnership is nothing but  a  compendious name  for  partners involving the corollary that  a  partner cannot  be  a  creditor  of the  partnership  will  have  no practical impact.    In Bhogilal’s case(2) the position was substantially  the same as in the present case.  On Arvind attaining the age of majority  and  electing to continue as a partner  he  became entitled  to  all the rights and obligations  of  a  partner since he was admitted to the benefits of the partnership and also to receive his share of profits computed at the end  of the year as regulated by the partnership deed.  On the death of  Arvind the partnership stood dissolved and accounts  had to be made up on August 31, 1950.  But the earliest date  on which  Arvind’s  estate became entitled to a  share  in  the profits  was after he attained the age of majority:  it  was therefore  not income which arose directly or indirectly  in favour of a minor child so as to attract the application  of S. 16(3) of the (1) [1955] 1 S.C.R. 313. (2) (1955) 281.T.R. 919. 769 Income-tax  Act.   It  must be noticed  that  in  Bhogilal’s case(1), income was earned by the firm in Samvat year  2006, and  Arvind attained the age of majority before the  end  of that year.  The Revenue authorities sought to apportion  the share  of  Arvind in the income, and sought  to  render  the



father  liable  for  that part of the income  which  it  was claimed  was properly attributable to the part of  the  year during which Arvind was a minor, but that claim was rejected and  the entire share of Arvind in the profits was held  not taxable under s. 16(3) as part of the income of his father.   In  the present case at the date when  Ashokbhai  acquired the  right  to  receive a share of  profits,  there  was  no subsisting joint family and his share of the profits was not received by him on behalf of the assessee.    There was in this case no assignment of the profits which had  already  accrued to the assessee.  Profits  accrued  to Ashokbhai and on the date on which they accrued the assessee had  because  of the deed of partition no  interest  in  the profits.   The  Revenue  authorities could  not  claim  that profits  which  under the instrument of  partition  did  not accrue  or  arise  to Ashokbhai as  representing  the  Hindu undivided family must for purposes of taxation be so deemed. The  High  Court  was, therefore,  right  in  answering  the question in the negative. The appeal fails and is dismissed.                            Appeal dismissed. (1) (1955) 28 I.T.R. 919. 770