TMI Blog1971 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... estion for our decision: "Whether, on the facts and in the circumstances of the case, the assessments on the firm made after all the partners had been assessed first on the share income from the firm, were valid?" Messrs. Kale Khan Mohd. Hanif, a firm registered under the provisions of the Income-tax Act, carries on business of manufacturing bidis in this State. For the years 1958-59 and 1959-60 the assessment of the firm was taken up by the Income-tax Officer. When the matter was ultimately taken in appeal to the Income-tax Appellate Tribunal, a new ground was raised before it that inasmuch as the partners of the firm were individually assessed and inasmuch as the Income-tax Officer had exercised his discretion in assessing the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m itself shall be determined; and (ii) 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, instead of determining the sum payable by the firm itself, proceed to assess the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year, and determine the tax payable by each partner on the basis of such assessment, if, in the Income-tax Officer's opinion, the aggregate amount of the tax including super-tax, if any, payable by the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l order passed in the case of the firm. . . . " The argument advanced on behalf of the assessees is that under section 3 of the Income-tax Act, 1922, both the firm and the individual partners are designated as "assessees". The department has, therefore, the choice to assess the firm as such or to assess the income of the firm in the hands of the partners. Once the department makes its choice of assessing the income in the hands of the partners, it cannot proceed to assess the firm as such and, having assessed the firm, resort to section 35(5) of the Act to rectify the assessments of the individual partners. In support, a number of cases were cited before the Tribunal as well as before us. We may, however, refer to only one case which cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment is determined. Thus, under sub-section (5) of section 23 as it stood after its amendment in 1956, the income-tax payable by the registered firm itself and the tax payable by the individual partners of the registered firm on their share in the income from the firm as also on their other income is required to be determined. This clearly shows that the two entities, namely, the registered firm, and the individual partners, are expected to be separately assessed and the tax liability of the two entities is required to be determined. Clause (b) of sub-section (5) of section 23 of the Act, on the other hand, makes it clear that in the case of an unregistered firm the Income-tax Officer has a choice that instead of determining the sum payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of a registered firm by an express amendment of section 23(5) by the Finance Act of 1956. It was pointed out by their Lordships that before the amendment of section 23(5) the character of the firm as a separate entity was well established, but the firm itself did not pay any tax and the assesment was made on individual partners in accordance with the provisions of that section. After 1956 the firm did not cease to be an assessee; on the contrary, it was recognised as a separate entity and was subjected to tax as such. From those observations of their Lordships of the Supreme Court in Jain Brothers case, and also for the reasons given by us above, viz., that in the case of a registered firm and its partners there is no provision for the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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