TMI Blog1957 (2) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... late Assistant Commissioner gave him some relief. On further appeal to the Tribunal, the tax payable was reduced to ₹ 2,479-11-0. Pending the appeal to the Appellate Assistant Commissioner, the Additional Income-tax Officer, Tenali, issued a notice to the appellant on 25th June, 1952, under section 18A(8)of the Income-tax Act (hereinafter referred to as the Act) alleging that he had not paid the advance tax payable under section 18A(8) and, therefore, he has liable to pay penal interest under the said section in a sum of ₹ 3,632-10-0, being the amount of interest payable from 1st April, 1947, to 13th March, 1952, at 6 per cent. per annum on ₹ 12,227-8-0 and directing the said amount to be paid before 25th July, 1952. The appellant filed objections denying his liability to pay the said amount. On 31st October, 1953, the appellant again received a notice under section 35 of the Act proposing to rectify the assessment under that section on the ground that, while completing the assessment for 1947-48, the penal interest under section 18A(8)was not charged by mistake. The appellant filed his objections contending that the omission to charge penal interest was not due t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer to add the interest in the manner laid down in sub-section (6) to the regular assessment. If such an addition was not made by mistake, we have no doubt that the omission was a clear mistake apparent from the record of assessment and, therefore, liable to be rectified under section 35 of the Act. It is, therefore, contended by the learned counsel for the assessee that no interest was payable by the assessee under sub-section (6) of section 18A as no duty was, cast upon the assessee to send to the Income-tax Officer an estimate of the tax payable by him within the meaning of sub-section (3). The material portion of sub-section (3) reads : Any person who has not hitherto been assessed shall, before the 15th day of March in each financial year,..........send to the Income-tax Officer an estimate of the tax payable by him on that part of his income to which the provisions of section 18 do not apply . The contention is that the provisions of the sub-section apply only to a person, who has not hitherto been assessed, but as the appellant's unregistered firm was assessed before the financial year 1947-48, he was not bound to send his estimate of the income, and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. Section 23(3) : On the day specified in the notice issued under subsection (2) or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment. (4) If any person fails to make the return required by any notice given................the Income-tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment and in the case of a firm may refuse to register it or may cancel its registration if it is already registered. (5)(a) In the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined. (b) In the case of an unregistered firm, the Income-tax Officer may instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company, local authority, unregistered firm or other association of persons, not being a registered firm, or the partners of the firm or members of the association individually an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates lain down for that year by a Central Act. Provided that where under the provisions of clause (b ) of sub-section (5) of section 23 an unregistered firm has been assessed in the manner applicable to a registered firm, super-tax shall be payable by each partner of the firm individually on his share in the income, profits and gains of the firm and not by the firm itself . The aforesaid fasciculus's of sections clearly indicates that, for the purpose of the Income-tax Act, an unregistered firm is a distinct assessable unit or assessable entity though, for the purpose of the Indian Partnership Act, it is not a legal entity but only consists of individual partners for the time being. A clear distinction is maintained between a firm and its partners. Section 3 charges the income of every fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consider the legal position of a registered firm for it is admitted that the firm was not registered before 1947-48. The question of the legal status of a firm in income-tax law has been considered by Courts in different contexts. The words assessee and assessment have been defined with clarity by Lord Reid in Seth Badridas Daga v. Commissioner of Income-tax, Central and United Provinces [1949] 17 ITR 209. At page 211, Lord Reid says : It will be convenient to begin with section 23 which deals with assessment..........The section requires the Income-tax Officer to do two things : first to compute or ' assess ' a person's total income, and then to determine the sum payable as tax. Sub-sections (1) to (4) set out alternative methods of computation or assessment. In the normal case, the person whose income is being computed is the person who pays the tax and for that case these sub-sections also provide for the Income-tax Officer taking the second step and determining the sum payable as tax. But the case of a firm is specially dealt with by sub-section (5). This sub-section only comes into operation after the total income of the firm has been computed or & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 were dealing with the question whether a change in the constitution of a partnership brings necessarily into existence a new assessable unit or a distinct assessable entity. In that case Mahajan, J., as he then was, after bringing out the distinction between the status of a firm in the partnership law and that in the income-tax law made the following useful remarks at page 409 : The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership, under English law or Indian law, cannot be taken in applying the law of income-tax . The above observations, though made in a different context, being that of the Supreme Court must be given due weight. They indicate without any ambiguity that for income-tax purposes a partner and a firm are separate and distinct units. Another Division Bench of the Madras High Court in Narayana Chetty v. Income-tax Officer [1954] 26 ITR 310 dealt with the applicability of section 34 to the case of a firm, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Chief Justice anticipated, added by section 27 of the Indian Income-tax (Amendment) Act, 1939, a new proviso to section 24, where under if the assessee is an unregistered firm, any loss of that firm shall be set off only against the income, profits and gains of that firm and not against the income, profits and gains of any of the partners of the firm. In view of the Supreme Court decision and the amendment introduced in 1939, this judgment no longer holds the field. Strong reliance is placed upon the judgment of the Judicial Committee in Arunachalam Chettiar v. Commissioner of Income-tax [1936] 4 ITR 173 . The question in that case was whether a partner can claim to deduct against other profits or gains a sum which he has become liable to bear or pay by reason that he has paid or will have to pay on account of the firm more than his share so as to give him a right of contribution from the other partner who is insolvent. The Judicial Committee held that he could not claim the said item as a deduction against the profits or gains shown by him in his return. In that context, the Judicial Committee made the following observations at page 178 : In particular they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to income-tax for the year 1937-38. The appellant sought relief under the provisions of the Madras Agriculturists' Relief Act. He was not entitled to do so under the Act if he was considered to have been assessed to income-tax by reason of the assessment of the firm. In holding that he must be deemed to have been assessed to income-tax within the meaning of that Act, the learned Judges made the following observations at page 285 : It seems to us impossible to read the expression 'assessed to income-tax' in the present case in so narrow a sense. It cannot be denied that when the income of a partnership is assessed to tax under the Act what is really assessed is nothing less than the income of the individual partners and we think that to say that a person has been assessed to income-tax may properly be paraphrased by saying that he has paid income-tax, or that his income has been subject to income-tax or has been reduced by the amount of the income-tax... He was entitled to one-fourth share of the profits of the factory and he must have received those profits less the amount of tax paid by the partnership upon them . The judgment must be confined to the interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed for the issue of a notice of demand under sub-sub-section (3) of the said section. The essential condition for the application of section 29 is that there should have been an order passed under or in pursuance of the Act. The learned counsel's argument that, under the section notice of demand is necessary if any interest is due in pursuance of the Act irrespective of the fact whether there was an order or not, does violence to the language and the well-recognised rules of grammar. If that was the intention, the section should have run whether any interest is due in consequence of an order passed under the Act or in pursuance of this Act . The disjunctive between under and in clearly indicates that the order should have been passed under or in pursuance of this Act. That apart, the construction sought to be put upon the section effaces the distinction made by the statute between a person who has not hitherto been assessed and one who is sought to be assessed for the first time. Under sub-section (3), an obligation is cast upon a person, who has not hitherto been assessed, to send an estimate of the tax payable by him and to pay the amount on such of the dates specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim interest from the assessee under section 18A(6) of the Act. Lastly, it is argued that the provisions of section 35 did not apply to the facts of this case. Under section 35, the Income-tax Officer may, at any time within four years, from the date of any assessment order, rectify any mistake apparent from the record of assessment. The assessment in this case was made on 13th March, 1952, and, under the said section, the Income-tax Officer could rectify any mistake apparent from the record of assessment within four years from the date. The alleged mistake was corrected in the present case within the prescribed time. The only question is whether there is a mistake apparent from the record of assessment. We have held that a statutory obligation is cast on the Income-tax Officer under section 18A(8) to add the interest payable under sub-section (6) to the tax as determined on the basis of the regular assessment. The Income-tax Officer by mistake did not add the interest payable by the assessee to the tax determined by him on the basis of the regular assessment. He, therefore, committed a clear mistake which is apparent from the record of assessment. In this view, the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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