TMI Blog1968 (3) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for renewal of registration. According to the assessee, the firm was a partnership firm consisting of 18 partners. These partners had filed their individual returns separately and assessments were made thereon separately. The Income-tax officer held that there was no genuine partnership of 18 partners but it was an association of persons in which there were some dummy partners who represented the four dominant partners. He refused to register the firm and made the assessment in the status of association of persons. The assessee filed appeals before the Appellate Assistant Commissioner both against refusal to register the firm as well as against the quantum of income assessed, but met with no success exept to a slight extent in the matter of quantum of assessment. The assessee then filed appeals before the Tribunal which decided them by a consolidated order on 8th March, 1961. The Tribunal held that the assessee was a partnership firm and should be registered up to 24th February, 1955. The Tribunal annulled the assessment for both the years 1954-55 and 1955-56 on the grounds contained in the following concluding part of its judgment : " Coming to the assessments made undeg se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessments to be vide paragraph 16. As the assessments are being annulled, it is not necessary to give any finding as regards the additions made on different counts to the income shown.In the result we summarise our decisions on the four appeals separately : 1. Registration (a) The firm is found to be genuine and it is directed that registration for the assessment year 1954-55 should be allowed. (b) For the assessment year 1955-56 the firm is found to have dissolved on the death of the partner, Shri Hira Lal, on 24-2-1955. The assessment should be made up to this period and registration allowed for this period only. 2. Quanlum of assessments made under sections 23(3). For both the years 1954-55 and 1955-56, the assessments are annulled. In the result, the appeal under section 26A for the assessment year 1954-55 is allowed, the appeal under section 26A for the assessment year 1955-56 is allowed pro tanto, and the other two quantum appeals for the assessment years 1954-55 and 1955-56 are allowed. " Notice of this reference was given to the assessee and the first objection raised by learned counsel for the assessee is that the question formulated by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment of the same income. In fact, the assessee was not till then assessed as a firm and what the Tribunal meant in its judgment was that the assessment of the firm would be bad in law as it would result in double assessment of the same income. Learned counsel for the department has urged that how far this view of the Tribunal was correct has been submitted by the Tribunal for determination to this court but the question formulated by the Tribunal is not happily worded. Learned counsel for the assessee has argued that the question should be answered as it is worded and it is not permissible for this court to amend a question in any shape or form. Learned counsel for the assessee has relied an a number of authorities starting from Commissioner of Income-tax v. Kameshwar Singh. In that case, the Lordships of the Privy Council observed that the duty of the High Court under section 66(5) is to " decide the questions of law raised " by the case referred to them by the Commissioner and it was for the Commissioner to state formally the questions which arise. In that case, the High Court itself formulated a question for its decision and their Lordships deprecated this departure fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion being answered in favour of the assessee-firm, the question of the applicability of section 10A of the Excess Profits Tax Act could not arise, for the assessee-firm having, during the relevant period, no business to which that Act applied, section 10A could not be invoked by the revenue and, therefore, the question whether there was evidence to support the finding of the Tribunal under that section could not arise. On the contrary, the further question of law which would really arise out of the order of the Appellate Tribunal consequent upon the aforesaid answer to question No. 3 would be whether, under the facts and circumstances of the case, the application of section 10A with a view to amalgamating the income of the firm, Uppal Co. and Ram Singh . Co., with the income of the assessee-firm was correct and valid in law and that was precisely the first question which the assessee-firm sought to raise by its application. In our view, the High Court should not only have answered question No. 3 in the negative but should also have raised, as a corollary to that answer to question No. 3, the further question of law on th e lines indicated in question No. 1 of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners individually ? " Now we preceed to answer this question. Section 3 of the Act is the main charging section and it runs as follows : " 3. Charge of income-tax.--Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the meinbers of the association individually. " Section 23 of the Act deals with the assessment Sub-section (5) of section 23 deals with the case of a registered firm and its relevant part as it stood before 1st April, 1956, runs as follows : " (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4) as the case may be,- (a) in the case of a registered firm, (i) the income-tax payable by the firm itself shall be determined ; and (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition cannot be supported on the language of section 3 of the Act. Section 3 no doubt permits the assessment of the partners of the firm in their individual status and, if the Income-tax Officer assesses the partners of the firm knowing that he has the option either to assess the firm or the partners of the firm, a question may arise whether it is open to him to assess the firm. In Joti Prasad Agarwal's case the view taken was that one such income has been charged to tax in the hands of one of the entities mentioned in section 3 of the Act, it cannot be charged in the hands of another of those entities subsequently. Bhargava J., who delivered the judgment on behalf of the court, observed as follows : " In the present case, the income, which was earned by the association, was assessed and charged to tax in the hands of the members of the association individually under one of the alternatives provided under section 3 of the Income-tax Act. This assertion of the petitioners is admitted by the opposite party, the Income-tax Officer, in the counter-affidavit filed on his behalf. The income having once been charged to tax, it is urged that it could not be charged to tax again in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation because the various partners of the firm had already been taxed on the profits which they received from the firm. Learned counsel for the department has, however, argued that on the assessment of the income of the firm it may turn out that it was higher than the aggregate amount of the income on which the various partners had paid income-tax treating it to be income derived from the firm and in that case the result will be that the total income of the firm has not been taxed but a portion of it has escaped taxation. In such a case, it is urged, it will be open to the Tribunal to act under section 23(5) of the Act and thereafter for the department to take action under section 33(5) of the Act. This contention, in our opinion, is sound. What can be read as an implied prohibition under section 3 of the Act is that once the total income of an entity has been assessed and taxed in the hands of other entities referred to in that section, no tax can be collected from the first entity. To take a concrete example, suppose there is a firm consisting of four partners A, B, C and D and the Income-tax Officer first assessesm the income of the partners and imposes income-tax on them, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a firm. But the enactment of section 35(5) has changed the position. In Income-tax Officer v. S. K. Habibullah it was herd that under clause (5) of section 35, the power to rectify the assessment of a partner of a firm by including or correcting his share of the profit or loss of the firm can therefore be exercised only in the case of an assessment of a firm made on or after 1st April, 1952, and that the Income-tax Officer had no jurisdiction under clause (5) of section 35 of the Act to rectify the assessment of it partner consequent on the assessment of the firm disclosing an error made before 1st April, 1952. In our case, it is not in dispute that the assessment of the partners was made after 1st April, 1952, and the assessment of the firm has yet to be made. In Income-tax Officer, Tuticorin v. T. S. Devinatha Nadar (Civil Appeals Nos. 2154 to 2158 of 1966 decided by the Supreme Court on 25th October, 1967), it has been observed as follows : " Under sub-section (1) of section 35, the income-tax authorities mentioned therein were empowered to rectify mistakes apparent from the record. Such power could, in the case of an Income-tax Officer, be exercised at any time within f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of computation of the period of four years under section 35(5) is the date of the final order passed in the case of the firm. " Thus, the effect of sections 23(5) and 35(5) is that the assessment proceeding with regard to a registered firm may continue for the purposes of computation of the income and even for the purpose of determining the share of the partners in that income, both of which will be notified according to law. Then appropriate proceedings can be taken for rectification of the mistake, if any, in the assessment of the partners under section 33(5) of the Act. Learned counsel for the assessee has strongly relied on a judgment of the Bombay High Coort in Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory which has been confirmed by the Supreme Court in Commissioner of Income-tax v. M. J. P. Ginning and Pressing Factory. It was held that once the option is exercised for assessing the individual partner and including his share of profits in the firm in his assessment, it is not open to the department to assess the same income as income of the unregistered firm. Referring to sub-section (5) of section 35, the Bombay High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is removed. We are, therefore, of the opinion that the proper thing for the Tribunal to do was not to drop the proceedings relating to the assessment of the assessee but to proceed on to assess its income on the basis that it was a registered firm in accordance with section 23(5) of the Act. In this case the assessee itself had prayed that it should be assessed as a firm, and there was no bar for the Tribunal to assess it as a firm if there is already material on the record. Otherwise, it may direct the Income-tax Officer to make a fresh assessment of the income of the assessee in the status of the firm. We may mention that the Tribunal is of course to decide the objection of the assessee that the firm was a dissolved firm and therefore it could not be assessed as a firm. We, therefore, answer the question as reframed by us, i.e., " Whether, on the facts and circumstances of the case, the assessment of the firm Messrs. Chaganlal Durgaprashad for the years 1954-55 and 1955-56 as a firm would be bad in law in view of the fact that assessments had already been made by its partners individually ? " in the negative. In our opinion, taking proceedings for assessment in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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