1969 (8) TMI 17 - HC - Income Tax

Whether it is legal to assess an unregistered firm after assessing the share income from the firm in the hands of one of the partners - question referred by the Tribunal is answered in the negative and in favour of the assessee

Summary

Issues:
Assessment of unregistered firm after assessing share income from one partner.

Analysis:
The case involved a question of law regarding the assessment of an unregistered firm after assessing the share income from one of the partners. The firm in question was involved in supplying stores to the military department on contract. The assessment for the firm for the year 1959-60 was completed after one of the partners had already been assessed on his share income from the firm. The Appellate Assistant Commissioner and the Tribunal both held that it is legal for the Income-tax Officer to assess both the partners of an unregistered firm and the firm itself. The Tribunal relied on a previous decision by the Allahabad High Court in Hazari Ram Mohan Ram v. Commissioner of Income-tax to support their conclusion.

The Tribunal referred the question of law to the High Court, which analyzed the issue based on the charging section of the Income-tax Act, 1922. The court highlighted that the charging section imposes tax on different assessable entities, including individuals, Hindu undivided families, companies, local authorities, firms, and other associations of persons. The court emphasized that the tax can be levied either on the firm or its partners individually, but not on both simultaneously. This interpretation was supported by the Supreme Court's decisions in cases such as Commissioner of Income-tax v. Kanpur Coal Syndicate and Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory.

The court further explained that once the income of an association has been charged to income-tax in the hands of the members individually, there cannot be a fresh assessment of income in the hands of the association. This principle was established in earlier cases like Joti Prasad Agarwal v. Income-tax Officer and was reaffirmed by subsequent decisions, including Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory. The court clarified that the Income-tax Officer cannot assess the same income twice, once in the hands of the partners and again in the hands of the unregistered firm. The judgment concluded that the Income-tax Officer cannot proceed to assess the income of the firm after it has already been taxed in the hands of the partners. Therefore, the court answered the question referred by the Tribunal in the negative, in favor of the assessee, and awarded costs to the applicant.