TMI Blog2004 (2) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was delivered by M. S. Shah J. -In this group of references, the following question has been referred under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for our opinion for the assessment years 1983-84 and 1984-85: "Whether, the Appellate Tribunal is right in law and on facts in cancelling the order passed by the Commissioner of Income-tax under section 263 of the Act wherein he had held that the income of the period, i.e., November 16, 1982, to March 31, 1983, is to be taxed in the assessment year 1984-85 since the assessee was not allowed to change the previous year?" The facts leading to filing of this group of references, briefly stated, are as under: The assessees herein, 11 in number, were partners of CMC (India). The assessees derived share income from the profits of the said firm. The previous year of the firm was the Samvat year. Consequently as far as the share income of the said firm was concerned, the previous year of the assessees was the Samvat year. The firm came to be dissolved on March 31, 1983. For the assessment year 1983-84, each of the 11 assessees filed two returns of income-in the first return of income, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act in the case of the assessees and relying on the decision of the Bombay High Court in CIT v. McKenzies Limited [1980] 121 ITR 458, the Tribunal allowed the appeals and held that the assessment made by the Inspecting Assistant Commissioner for the period from November 16, 1982, to March 31,1983, under section 143(3) read with section 176 was strictly in accordance with the provisions of section 3(1) of the Act and accordingly the Tribunal cancelled the orders passed by the Commissioner of Income-tax under section 263 of the Act. Hence, these references at the instance of the Revenue. We have heard Mr. B.B. Naik, Mr. Manish R. Bhatt, Mr. Tanvish Bhatt and Mrs. Mauna Bhatt, learned standing counsel for the Revenue. We have also heard Mr. Ketan H Shah, learned counsel for the respondent-assessees. Learned counsel for the Revenue have submitted that the Tribunal committed a serious error of law in overlooking the provisions of sub-section (4) of section 3, which provide that where an assessee has once been assessed, then, he shall not in respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression "previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such, then, in respect of the assessee's share in the income of the firm, the period determined as the previous year for the assessment of the income of the firm has to be treated as the previous year for the assessee's share in the income of the firm and that the said provisions are mandatory and do not leave any option either with the partner or with the Assessing Officer. Hence, there was no question of obtaining any consent of the Income-tax Officer, particularly because the firm CMC (India) itself had filed two returns for the assessment year 1983-84-one relating to the Samvat year 2038 and the other relating to the period November 16, 1982, to March 31, 1983. Learned counsel also relied on the fact stated in the statement of the case drawn by the Tribunal that "the Assessing Officer who was the same officer who had assessed the firm passed two assessment orders in the case of the firm". Hence, the Tribunal was right in holding that the original assessment order was not erroneous and, therefore, the Commissioner's orders under section 263 have rightly been set aside. Learned counsel also placed strong reliance on the following decisions: (i) CIT v. McKenzies Ltd. [1980] 121 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scontinued business. -(1) Notwithstanding anything contained in section 4, where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the Income-tax Officer, be charged to tax in that assessment year. (2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year." "263. Revision of orders prejudicial to Revenue. -(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income of the firm has to be treated as previous year for the assessee partner also. The Tribunal has found that the same Assessing Officer who passed the assessment orders accepting both the returns of the firm for the assessment year 1983-84 also accepted the returns of the present assessees for the same assessment year. Learned counsel for the Revenue would, however, contend that in view of the provisions of sub-section (4) of section 3 the assessees were required to obtain the consent of the Income-tax Officer for varying the previous year because they were already assessed for the earlier assessment years on the basis of the Samvat year being the previous year and, therefore, they could not have filed any return for the period November 16,1982, to March 31, 1983, by treating the financial year as the previous year. The provisions of sub-section (4) of section 3 contemplate various situations including the provisions of clauses (b), (d) and (e) of sub-section (1) of section 3. In the facts of the instant case, we are not concerned with any of those provisions. As far as reliance placed on the last portion of sub-section (4) of section 3 is concerned, if the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate returns, a lower tax rate was applied to the income for the period November 16, 1982, to March 31, 1983, and, therefore, the assessments for the assessees were erroneous and also prejudicial to the Revenue. Whether lower tax rates were applied to the income for the period November 16, 1982, to March 31, 1983, is a question of fact. In this connection, we would refer to the order of the Commissioner of Income-tax under section 263 of the Act. The entire order proceeds on the basis that the assessees-partners having adopted the Samvat year as the previous year were not entitled to file any return for the period from November 16,1982, to March 31,1983, and that since that period was a part of the Samvat year 2039, the income of the assessees from the share in the firm's profit was required to be added to the income of each assessee for the Samvat year 2039 and not assessed separately. In response to the notice under section 263, the assessees had filed their reply and at the hearing also contended that in making two assessments, there was no prejudice to the interest of the Revenue and, therefore, the proposed action under section 263 may be dropped. After setting out the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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