TMI Blog1967 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act of 1961. In the original assessments of the firm for the relevant assessment years with which we are concerned, the assessments were made on the slab rates applicable to registered firms in the respective Finance Acts. In the individual assessments of the partners their respective shares in the income of the firm were included and assessed at the maximum rate of income-tax since the assessments were made in the status of non-residents. On February 1, 1965, the petitioner-firm was served with a notice dated January 29, 1965, by the respondent intimating to it that in its assessments for the assessment years 1958-59, 1960-61, 1961-62 and 1962-63 there were mistakes apparent from the record inasmuch as the firm had not been charged at the maximum rates of income-tax under section 17(1) of the Act of 1922, corresponding to section 113 of the Act of 1961, and he, therefore, proposed to rectify the assessment and enhance the tax under section 154 of the Indian Income-tax Act of 1961. The petitioners replied to the said notice contending that there was no mistake either apparent or otherwise in the said assessments and consequently the Income-tax Officer had no power to invoke hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unmistakably governed by the provision of section 17(1) is correct and there can possibly be no difficulty in coming to an immediate conclusion on a perusal of the said provision that it must apply to the assessee's case, the department would be right in saying that there is an error apparent from the record. It is, however, contended by the assessee-firm that it is clear from the said provision itself and also when considered in the context of the scheme and history of the legislation that it has no application to the assessment of a registered firm, nor was it ever intended to have any such application. It is argued on behalf of the assessee that the application of the said provision would lead to the startling result of the income being taxed at more than 100 per cent. and the provision, if interpreted in the manner as contended for by the department, would go beyond the ambit of the charging section, which requires the income-tax to be a tax on the income and, therefore, related to income, and thus would be rendered inoperative and invalid. It is argued on behalf of the assessee that it is the action of the Income-tax Officer to apply the provisions of section 17(1) to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. It would be seen that an assessee who was a resident was taxed on his total income on the slab basis where the maximum income-tax at the rate of 25 per cent. was applicable to his income only when it exceeded a certain limit, whereas in the case of a non-resident assessee the whole of his income was taxed at the maximum rate of income-tax. Similarly, in the matter of super-tax, while the resident was subjected to taxation on a slab basis, the non-resident had to pay super-tax calculated on the whole of the income at a specified rate or the proportionate part of super-tax calculated on his total world income, whichever was greater. The rationale of this provision, it would appear to us, is that whereas in the case of residents their entire income was subject to the Indian Income-tax Act, in the case of the non-residents their income which could be assessed to the Indian income-tax would not constitute their entire income, a part thereof being outside the taxation laws of this country and consequently a higher rate of tax on their income which is taxable here will not be unjustified. Now, at the time when section 17(1) provided for the taxation of a person who was not a resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, be pointed out that the main and substantial scheme in the matter of assessment of registered firms, viz., to compute the total income of the firm and determine the shares of the individual partners in the firm and thereafter take the said shares to the individual assessments of the individual partners and tax them in their hands along with their other income has not been abandoned. The entire income of the registered firm as computed is taken to the individual assessments of the partners and taxed there and it is in addition thereto that a further tax is levied on the firm itself. This obviously involves a double taxation to a certain extent and it appears that certain reliefs in respect thereof have been made available to the partners. It may also be pointed out that, whereas the computed total income of the firm, which is taken to the assessment of the individual partners, gets subjected not only to income-tax but also to super-tax in the hands of the partners, the new levy of tax on the registered firm itself is confined only to income-tax and not to super-tax and the rates at which the new levy is imposed on the firm are also very low compared with the rates which ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable both to income-tax and super-tax. The registered firm, as we have seen, is liable only to a small income-tax and not at all to the super-tax. It is, therefore, arguable that the provision of section 17(1) which is applicable to persons who are liable to be taxed to both income-tax and super-tax cannot apply to the registered firms which are not liable to super-tax altogether. It is argued by Mr. Joshi that the relevant Finance Acts in their Schedules have provided that in every case in which under the provisions of the Indian Income-tax Act, income-tax is to be charged at the maximum rate, it should be charged on the whole income at the rates specified therein. Since section 17(1) provides for the charging of income-tax at the maximum rate in the case of any person who is a non-resident and since the petitioner No. 1 firm is a non-resident, income-tax must be charged at the maximum rate of 25 per cent. under the provisions of the Finance Acts. Now, the answer to this, it appears to us, is that section 17(1) spoke of subjecting the non-resident person to the maximum rate at a time when the non-resident registered firm was not liable to taxation. The section as it originally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the additional tax, which is now imposed upon them is brought within the purview of section 17(1), cases will easily arise where the total tax consisting of the tax on the firm and tax in the hands of the individual partners will be in excess of the income itself. The assessee has pointed out that even in its own case for the assessment year 1962-63, which is one of the assessment years with which we are concerned in the present petition, for the income of over Rs. 2 lakhs, the rate of tax calculated on the basis suggested by the department, viz., taxation at the maximum rate in the hands of the firm as well as in the hands of the partners, would go to 102 per cent. The actual calculations in this connection have not been challenged by the department. It is, however, argued by Mr. Joshi that in fact the petitioners have not been required to pay more than 100 per cent. of the income by way of tax this year. Mr. Palkhivala points out that the reason why in spite of the calculations which he has given, the total tax assessed does not exceed the total income computed for the levy of tax is because of the fortuitous circumstances that the said income includes some capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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