TMI Blog1962 (7) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... nture lasted for a few months in the accounting year ending with 6th November, 1953. We are here thus concerned with the assessment year 1954-55. In the assessment proceedings of partners the profit of the venture as disclosed amounted to ₹ 51,280. The respective shares in the said income from this venture were assessed and brought to tax in the hands of Murlidhar and the two partners of Purna Ginning and Pressing Factory and the three assessments of these persons were completed on 9th March, 1957. At the end of the assessment order, the Income-tax Officer made the following note: Joint venture income with Messrs. Purna Ginning and Pressing Factory taken provisionally subject to rectification after the assessment of the joint venture. It appears that, at the instance of the Income-tax Officer, Murlidhar voluntarily submitted in November, 1957, a return of the income of the joint venture, but soon on 18th December, 1957, he withdrew the return. The Income-tax Officer, however, proceeded and completed the assessment of the firm under section 23(3) of the Act in the status of an unregistered firm. He computed the income of the joint venture at ₹ 82,925 and brought it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxed in the hands of the partners, then the department would be prohibited from charging the same in the hands of the firm. In the instant case, no assessment under section 23(5) was made on the firm and, therefore, the assessment of the individual partners does not come in the way of the department from charging to tax the income of the firm in the hands of the firm. Mr. Joshi also says that the provisions of sub-section (5) of section 35 recognize the right of the department to assess a firm even after the completion of the assessment of its partners. He places reliance on the decision in Meka Venkatappaiah v. Additional Income-tax Officer, Bapatla [1957] 32 ITR 274 and the following observations in Talipatigala Estate v. Commissioner of Income-tax [1950] 18 ITR 320 : But it cannot be said that the assessment of an individual partner in a particular year is a bar to the assessment of the firm for that year. We have no hesitation in accepting the argument of Mr. Joshi that an unregistered firm and its partners are two distinct assessable entities for the purposes of the Income-tax Act. But we find considerable difficulty in accepting the contention of Mr. Joshi that the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self shall not be determined but 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 in the manner laid down in clause (a) as applicable to a registered firm, if, in his opinion, the aggregate amount of the tax including super-tax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an un registered firm. It would be seen that the sub-section has application when the department proceeds to assess the firm, i.e., when the assessee is a firm. The procedure is, firstly, the income of the firm, both registered and unregistered, has to be computed-in the case of a registered firm there is no option to the department, but the respective shares of the partners in the said computed amount of profits have to be taxed in the hands of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 661 of the report, Chagla C.J. observed: The first section to which we must look naturally is the charging section which is section 3, and unless the legislature has provided for a partner of an unregistered firm being liable to pay income-tax, the assessee's contention must be accepted. Now, as has often been pointed out, the assessable entity under the Income-tax Act is different from a legal entity. The object of the Income-tax Act is to spread its net wide and to include in that net every person and every association of persons, however that association may have been constituted. Therefore we find that what is subjected to tax under section 3 is the total income of the previous year of every individual, Hindu undivided family, company and local authority, and every firm and other association of persons or the partners of the firm or the members of the association individually. Therefore an individual can be assessed to tax, a partnership in which the individual is a partner can be assessed to tax, and section 3 does not provide that when there is a partnership only the firm can be taxed and not the partners of that firm. Chagla C.J. further, at page 667 of the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his income to which the provisions of section 18 do not apply .. Failure to observe the said sub-section rendered the person concerned to pay penal interest. A penal interest was levied on the assessee. Before the High Court, it was, inter alia, contended by the assessee that he was not liable to pay penal interest under section 18A(3)'as until immediately before that assessment year, he was a partner in a firm which was assessed to income-tax as an unregistered firm and, therefore, it could not be said that he had not hitherto been assessed within the meaning of section 18A(3). This contention was not accepted by the High Court on the ground that the unregistered firm was a distinct assessable entity and was different from the assessee who was a partner of that firm and the assessee was a person who had not hitherto been assessed within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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