TMI Blog1967 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922 (Act 11 of 1922) (hereinafter called the Act), for registration of the firm. The application under section 26A made on 18th of June, 1953, was signed by Hazari Mal Mangat Ram, Kirori Mal as individual partners and Harkishan Lal, on behalf of the firm Radha Kishan-Kewal Kishan. A considerable time elapsed before the order of assessment was made on 26th of March, 1958. Before the assessment order, a further application was made on 10th of February, 1958, for registration under section 26A of the Act and this was signed by the three individual partners and the four partners of the firm Radha Kishan-Kewal Kishan, seven persons in all. On 26th of March, 1958, the application under section 26A was refused and on the same day an order was passed by the Income-tax Officer assessing the petitioner as an unregistered firm under section 23(3) of the Act in respect of the accounting year ending with 30th June, 1952. The salient features of this assessment order, so far as the present reference is concerned, are that the petitioner, which was carrying on the business of forest lessees, was assessed on an income of Rs. 1,81,770, out of which Rs. 1,62,963 was the income decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e correct status of the assessee is that of an association of persons. We direct the Income-tax Officer to substitute this status." In the appeal to the Tribunal, an objection which had been taken before the assessing authority relating to the disallowance of the sum of Rs. 6,800 paid as salary to Harkishan Lal, was not permitted to be raised, as the question had not been specifically mentioned in the grounds of appeal before the Appellate Assistant Commissioner, who had accordingly declined to entertain it at the time of hearing, being in his opinion "an after-thought." The other matters, which were disposed of by the assessing authority, the Appellate Assistant Commissioner and the Appellate Tribunal, need not be referred to, as we are not called upon to make any determination in regard to them. Aggrieved by the order of the Appellate Tribunal of 23rd of February, 1962, the petitioner applied to it to make a reference about certain questions of law to the High Court. The Tribunal, by its order of 8th March, 1963, has referred the following questions of law for decision of the High Court and it appears from the statement of the case that the suggestions of the assessee made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the contention of Mr. Kaushal, the relevant provisions with regard to appeals may be briefly adverted to. Section 31 deals with the powers of an Appellate Assistant Commissioner and under sub-section (3) this authority may : "(a) confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry ... or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment, and determine where necessary the amount of tax payable on the basis of such fresh assessment . . ." Sub-section (4) says : "Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Assistant Commissioner may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association." The Appellate Tribunal empowered to hear appeals against the orders of the Appellate Assistant Commissioner, under sub-section (4) of section 33, "ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal reached the conclusion that the assessee could not be assessed as an unregistered firm. The Tribunal then proceeded to determine the question about the proper status of the assessee and both sides presented their respective points of view. The Tribunal reached the conclusion that the correct status of the assessee is that of an association of persons. It is interesting to observe that both before the Tribunal and the Appellate Assistant Commissioner a point was raised that no appeal could lie from the order of the Income-tax Officer assigning a definite status to the assessee. This proposition was contended for on behalf of the revenue and the assessee stoutly opposed it. It was upheld by both these authorities that an appeal could lie and the appellate authority could consequently determine what actually the status of the assessee should be. Indeed, if the contention of Mr. Kaushal prevails that the status of an assessee as fixed by the Income-tax Officer is either to be accepted or rejected, there would hardly be any point left in the appeal. If the Income-tax Officer is found to have incorrectly determined the status of the assessee, the Appellate Tribunal is not bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in reviewing the order, the appellate authority can exercise the same powers which the Income-tax Officer could exercise. No doubt, the courts in that case were concerned with the method of accounting in section 13 of the Act and especially the proviso which authorised the Income-tax Officer to determine the income on his own computation where no regular method of accounting had been adopted by the assessee. Though the scope of the decision was comparatively narrow, the observations made by their Lordships of the Supreme Court are of the widest amplitude, when it was stated that the appellate authority can exercise the same powers which the Income-tax Officer could have exercised. That such powers were not confined to the method of computation in section 13 but extended to other spheres as well, is clear from the observations made by the Bench that the "Commissioner of Income-tax may, acting under the provisions of section 33B, interfere with any order of the Income-tax Officer, including a determination under the proviso to section 13, provided the other conditions of the section are fulfilled." The Supreme Court also approved of the decision of Chief Justice Chagla and Tendolka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal certainly had the necessary jurisdiction to do this provided there is material on the record to determine the correct status in which a party should be assessed." Now, the Income-tax Officer and the appellate authorities were in possession of all the available material. The three individual partners and the four partners of Radha Kishan Kewal Kishan had submitted a signed application under section 26A on 10th of February, 1958, that the firm should be registered under section 26A. Every one of the persons concerned was present before the Tribunal and the question to be resolved was whether the assessee could be assessed as an unregistered firm or an association of persons ? It cannot be contested that an organisation of persons to produce wealth has to be assessed either as a firm or an association of persons under section 3 of the Act, company and local authorities being separate assessment units. If the assessee cannot be treated as a firm, obviously the assessment has to be made as an association of persons. Mr. Kaushal has strongly relied on the Supreme Court decision in Duli Chand Laxminarayan v. Commissioner of Income-tax for the proposition that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 'association of individuals'." It may be mentioned that upto 1939 the charging section, inter alia, refers to "association of individuals and after that date the nomenclature is changed to "association of persons" to make it more compendious. In Commissioner of Income-tax v. Krishna Reddy, a Division Bench of Umamaheswaram and Kumarayya JJ. of the Andhra Pradesh High Court held that a partnership having been formed to carry on Abkari business, which was in contravention of law, was void, but as the partners had joined with the common purpose of earning profits, they were assessable as "association of persons" on the profits. This ruling was intended to cover those cases where registration of a partnership under section 26A could not be made and the unregistered partnership was made liable as a single unit under "association of persons". The concept of "association of persons" was discussed by the Supreme Court in Commissioner of Income-tax v. Indira Balkrishna. "The 'association of persons'", as observed by Mr. Justice Das, speaking for the court, "as used in section 3 of the Income-tax Act means an association in which two or more persons join in a common purpose or common act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State as an "association of individuals". The Appellate Assistant Commissioner, in appeal, however, amended the assessment making the Maharaja personally the assessee. It was held by the High Court that the State of Tripura apart from the ruler has no juridical existence, the ruler being the source of all authority within its boundries. It was further held that the Assistant Commissioner in appeal had made "an entirely new assessment upon a new assessee and his act can in no way be described as confirmation, reduction, enhancement or annulment of the assessment". The assessment was accordingly set aside on the ground that the Appellate Assistant Commissioner had no jurisdiction to alter an assessment made by the Agricultural Income-tax Officer on the Tripura State into an assessment on the petitioner-ruler personally as no proceedings were started and no notices were served under the Act on the petitioner himself personally. It is contended by Mr. Kaushal, on the strength of this ruling, that the Appellate Tribunal, in substituting the status of an assessee as an "association of persons" for an unregistered firm, in effect has made a new assessment on a new assessee and the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Hukumchand Mills Ltd. Finally, the Appellate Assistant Commissioner should have allowed the assessee to raise the objection with regard to the item of Rs. 6,800. While this could not be allowed if the assessee is held to be a partnership firm, as salary paid to one of its partners cannot be regarded as an allowance, different considerations may prevail in the case of an association of persons. When the status is being altered, we think that the justice of the case requires that the objection of the assessee should be taken into consideration. Accordingly, our answers to the first two questions referred to us for disposal are in the affirmative and that of the third one in the negative. There would be no order as to costs of this reference. P. C. PANDIT J. --- In this case, a group of persons trading under the name and style of Messrs. Mangat Ram Hazari Mal filed their return of income for the assessment year 1953-54 (account year ending June 3, 1952) as a firm constituted under the deed of partnership dated July 5, 1951. It appears that, prior to the assessment year in question, this firm was being assessed in the status of a registered firm under a different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable entity in any sense." To this the revenue said : "No, you are an association of persons. You are an assessable entity. The Income-tax Officer erred in labelling you as an unregistered firm." The Tribunal rightly agreed with the submission of the revenue and ordered that the label should be corrected. Learned counsel for the assessee then argued that the Tribunal should have remanded the case to the Income-tax Officer for fresh assessment in the status of association of persons. Whether, in a particular case, remand would be the proper order depends on the circumstances of each case. The Tribunal has the power to correct an error in the manner just and proper in the circumstances of the case, I am satisfied that in this case the Tribunal acted rightly in ordering the correction of status and upholding the assessment in the corrected status. No prejudice has been caused to the assessee. It was not denied that, for the purposes of taxation, an unregistered firm and an association of persons are treated alike. Whether the assessee is taken as one or the other, it would consist of the same partners who signed the second application for registration dated February 10, 1958, a lit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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