TMI Blog1978 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... essments, the assessee-firm appealed to the AAC, who passed a consolidated order on the 28th April, 1971, covering the assessment years 1965-66 to 1968-69. Among the other grounds relating to the additions made in the relevant assessments, the assessee-firm disputed the assessments on the ground that the partners of the firm had already been assessed individually on their respective shares of income from the assessee-firm. It was contended that the ITO was wrong in demanding payment of tax from the assessee as an unregistered firm and it was bad in law inasmuch as the partners were already assessed to tax and there should not have been two assessments over the same income. Following the decision of the Supreme Court in the case of CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, the AAC held that once the ITO had exercised his option and assessed the partners individually he could not thereafter assess the same income in the hands of the firm. It was, therefore, concluded that the ITO went wrong in taxing the same income once again in the hands of the assessee as an unregistered firm. The AAC, however, directed that the assessments should be revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the partners under a belief that the assessee would for those assessment years continue to have the benefit of registration. In view of this, the Tribunal held that the AAC was not justified in his decision that the ITO was wrong in taxing the income of the assessee-firm again in the hands when its partners were already assessed to income-tax over the same income individually. Therefore, the assessments for the years involved in the case of the assessee-firm were restored to that extent And the ITO, who had jurisdiction over the partners, was directed to give effect to the Tribunal's decision in the assessments of the partners for all the three years in accordance with the provisions of s. 86(iii) of the I.T. Act, 1961, if he had not already done, to do it immediately after the completion of the relevant assessments in the case of the assessee-firm. On this under s. 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was justified in taxing the income in the hands of the assessee as an unregistered firm for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered firm, in respect of that portion of his share in the profits or gains of the firm as is equal to the difference between his share in the total income of the firm and his share in such total income excluding the income-tax, if any, payable by the firm, the shares in either case being computed in the manner laid down in clause (b) of sub-section (1) of section 16: Provided that in relation to super-tax the provisions of this clause shall have effect as if for the words 'excluding the income-tax, if any, payable by the firm' the words 'excluding the income-tax, if any, payable by the firm, at the rate of income-tax applicable to its total income, on the amount of its profits or gains from all sources other than from any business carried on by it' had been substituted; (b) if a member of an association of persons other than a Hindu undivided family, a company or a firm, in respect of any portion of the amount which he is entitled to receive from the association on which the tax has already been paid by the association." Sub-sections (1), (2) and (3) of s. 23 deal with the circumstances in which an ITO can make the assessment in the various contingencies dealt with in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year at any rate or rates, income-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 or previous years, as the case may be, of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act." Section 86 which deals with the similar situation as in s. 14 of the Indian I.T. Act, 1922, is as follows: "86. Other incomes.--Income-tax shall not be payable by an assessee in respect of the following--....... (iii) if the assessee is a partner of an unregistered firm, any portion of the assessee's share in the profits and gains of the firm computed in the manner laid down in section 67 on which income-tax is payable by the firm;...... (v) if the assesee is a member of an association of persons, or a body of individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of any completed assessment of a member of an association of persons or of a body of individuals it is found-- (a) on the assessment or reassessment of the association or body, or (b) on any reduction or enhancement made in the income of the association or body under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264, that the share of the member in the income of the association or body, as the case may be, has not been included in the assessment of the member or, if included, is not correct, the Income-tax Officer may amend the order of assessment of the member with a view to the inclusion of the share in the assessment or the correction thereof, as the case may be; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the date of the final order passed in the case of the association or body, as the case may be." In this connection, we have to refer to the provision of s. 183 of the I.T. Act, 1961, which deals with the assessment of an unregistered firm and reads as follows: "183. In the case of an un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only on the association of persons as a unit though after such assessment the share of income of a member of that association may be added to his other income under section 14(2) of the Act. This construction would make the last words of the section, viz.,'members of the association individually' a surplusage. This argument is also contrary to the express provisions of s. 3, which mark out the members of the association individually as a separate entity from the association of persons. Income of every person, whether he is a member of an association or not is liable to the charge under the head 'every individual'. Section 14(2)(b) only says that if such an individual happens to be a member of an association of persons which has already been assessed, the tax would not be payable in respect of the share of his income again. That, under the Act, 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 the income was assumed by this court in Commissioner of Income-tax v. Raja Reddy Mallaram [ 1964] 51 ITR 285 (SC). We, therefore, hold that section 3 impliedly gives an option to an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 had already been assessed in the hands of the member and it could not be assessed again as the income of the family, (2) that as the family had ceased to exist and the partition was recognised, no valid notice could be issued to the respondent in his capacity as the karta of the family. In his counter-affidavit, the ITO stated that he had information that notwithstanding the compromise decree, the members of the family were living together and had joint mess and the business was run by the respondent and, therefore, the compromise was make-believe one and the family, in fact, had continued to be the joint Hindu family. The High Court held that the notice was invalid on the ground that as the assessment of the income in the hands of the members of the family for the assessment year was not set aside, the same income could not be assessed again in the hands of the family by taking proceedings under s. 34. The Supreme Court was of the view (1) that the HUF was a distinct and assessable entity and if its income had escaped assessment for any one year, the ITO could issue a notice to the family under s. 34 of the Act. In setting out the grounds, the Supreme Court held, (2) that, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing section itself, as was done in the earlier Act, and s. 2(31) defined a person to include an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority and every artificial juridical person. Then, his Lordship referred to different provisions and the decision of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 and observed that the position was the same and, therefore, the inclusion of the share income of the petitioner in that case from the association of persons, which had already been assessed on the association, was not tenable in law. But, there, the learned judge was really concerned with the maintainability of the writ petition, because it was not disputed before the learned judge that the tax on the share income of the petitioner from the association of persons which had already been assessed as an association, was not justifiable in law. His Lordship was really concerned whether, in those circumstances, the notice, which was impugned in the application under art. 226 of the Constitution could be corrected in view of the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity which had escaped assessment and that under s. 3 of the Act there is no question of any election between an HUF and a member thereof in respect of the income of the family. If an HUF exists, the ITO has to assess it in respect of its income. Reference was made to s. 14(1) of the Act which says that any part of the income received by its members cannot be assessed over again. The distinction between an association of persons and an HUF was expressly referred to and it was observed: 'While section 3 confers an option on the ITO to assess either the association of persons or the members of the association individually, no such option is conferred on him thereunder in the case of an HUF, as its existence excludes the liability of its members in respect of the income of the former received by the latter.' The above decision of the Supreme Court has no application to the facts of this case where we are concerned with the assessment of an association of persons in respect of which we have already held that even under the new Act there is an option to assess either the association as the unit or the members individually. It is true, in the above decision, the Supreme Court gave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of s. 86(v) of the Act, appropriate adjustments would have to be made by the ITO in respect of the tax realised for that part of the income of the association which had been assessed on the members of the association. In the case of Rodamal Lalchand v. CIT [1977] 109 ITR 7, the Division Bench of the Punjab and Haryana High Court had to consider this question again. There it was observed that the definition of "person" in s. 2(31) of the I.T. Act, 1961, made no distinction between a firm or its partners, association of persons or body of individuals, whether incorporated or not, or the members of the association or the body of individuals in their individual capacity. The charging section of the Act, that is, s. 4, views each category of taxable entity alike as a distinct and different unit. In the case of a firm it would mean a firm or a partner. Similarly, in the case of an association of persons or a body of individuals, it would mean the association of persons or the body of individuals or the members. The option given by the word "or" to the assessing authority in the charging s. 3 of the Indian I.T. Act, 1922, to proceed against any out of these had then been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy, and then he must supplement the written words so as to give 'force and life' to the intention of the legislature. That was clearly laid down (3 Co. Rep. 7b) by the resolution of the judges (Sir Roger Manwood C. B. and the other barons of the Exchequer) in Heydon's case, and it is the safest guide today. Good practical advice on the subject was given about the same time by Plowden in his note (2 Plowd. 465) to Eyston v. Studd. Put into homely metaphor it is this: A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough in fiscal law the charging section is the most important provision, the said charging section must be understood and construed in the light of the machinery provided in order that the charge may be effectuated. Bearing the aforesaid principles in mind and having regard to the intention of Parliament for introducing the change, in our opinion, as there has been no substantial change in the machinery provided for taxation under the 1961 Act, the partners of an unregistered firm as well as the firm itself cannot be taxed twice. In other words, in the case of an unregistered firm and its partners there cannot be simultaneous taxation. On behalf of the revenue, however, it was contended that in this case the assessee-firm was a registered firm until the relevant assessment year. The ITO had no ground to presume that the same state of affairs would not continue and the assessee would not put forward an application under sub-s. (7) of s. 184 of the I.T. Act, 1961, and, therefore, when he made the assessment of the partners, the time to file the return by the assessee-firm had not expired. Therefore, it was presumed that the same state of affairs would continue and in those circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
