TMI Blog1990 (2) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... Nachimuthu Chettiar, one of the partners of the firm, was taken in as a partner in the said partnership. During the accounting year relevant to the assessment year 1960-61, Nachimuthu Chettiar died and the firm was reconstituted and a fresh, deed of partnership in respect of the newly constituted firm was also executed and the reconstituted firm consisted of Subramaniam as karta of the Hindu undivided family in the place of his deceased father, Nachimuthu Chettiar, and also in his individual capacity, and Shanmugham Chettiar. On the strength of the partnership deed, the Income-tax Officer granted registration to the said firm for the assessment years 1960-61 and 1961-62 and completed the assessments as well. However, the Commissioner of Income-tax, in the proceedings taken under section 33B of the Indian Income-tax Act, 1922, was of the view that the reconstituted partnership was invalid in law and that, therefore, the assessee was not entitled to the benefit of registration. In that view, he cancelled the registration of the firm as well as the assessment orders, with a direction that the Income-tax Officer should make fresh assessments according to law. The assessee preferred app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f at least one member, viz., Shanmugham Chettiar and, therefore, it must be concluded that the Income-tax Officer had exercised the option of assessing the income of the assessee-association in the hands of its members individually and the income could not be subjected to assessment in the hands of the assessee as an association of persons. In the result, the appeals preferred by the Department were dismissed and that is how the question of law set out earlier has arisen. Thus, the main question that arises for consideration is, whether under the provisions of the Act, an option was available to the Income-tax Officer, and if so, such an option was exercised by him. Even with reference to section 3 of the Indian Income-tax Act, 1922, an association of persons and individual members of such an association have been treated as two distinct and different assessable entities and tax can be levied on either of the said entities according to the provisions of that Act. Indeed, under section 3 of the Indian Income-tax Act, 1922, an assessment can be made on an association of persons as a unit or alternatively on the individual members thereof in respect of their respective shares of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the Revenue upon the decision reported in Setha Ram Dhanvir Singh v. CIT [1980] 123 ITR 150 (All) to contend that the assessment of an unregistered firm was valid, even though its partners were assessed individually. However, factually it was found in that case that there was no exercise of any option as such and it was on this ground that it was held that there was no election as such. It is significant that in that decision also, the availability of an option to the Income-tax Officer had been accepted, but it was held that there was no exercise of such an option. That decision would not, therefore, be of any assistance to the Revenue. We, therefore, hold considering the provisions of section 3 of the Indian Income-tax Act, 1922, and sections 2(31) and 4 of the 1961 Act, that the Income-tax Officer had an option to assess the association of persons as unit of assessment or the members of the association as individuals in respect of their respective shares in the profits made by the association. We now proceed to consider the question whether there was an exercise of the option by the Income-tax Officer. It is in this connection that reference has to be made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich had admittedly become final, is clearly indicative that, consciously, the Income-tax Officer proceeded to revise the assessments in the case of one of the partners, but failed to do so with reference to the other partner in whose hands the share income had been assessed individually and which assessment had also become final. That, in our view, would sufficiently indicate the exercise of an option by the Income-tax Officer on the facts and circumstances of this case. An attempt was made to contend that a communication had been addressed for revision of the assessment of the other partner, Shanmugham Chettiar, as he was under the jurisdiction of another Income-tax Officer. But even that would not in any manner assist the Department, for, in CIT v. R. Dhandayutham [1978] 113 ITR 602 (Mad), it had been clearly laid down that the normal procedure is to tax the association primarily and then to proceed to consider the income in the hands of the individual members and that even though the Income-tax Officer who had assessed the individual was different from the Income-tax Officer who assessed the association, by the action of the first Income-tax Officer the option in the Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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