Case Note & Summary
The Supreme Court dealt with an appeal by the Revenue against a judgment of the Calcutta High Court on a reference under the Indian Income Tax Act, 1922. The dispute concerned the validity of an assessment made on a firm as an unregistered firm for assessment year 1961-62. The assessee-firm had not applied for registration. The Income Tax Officer completed the assessment treating it as an unregistered firm, computing total income at Rs. 59,623, which included Rs. 50,000 as income from other sources agreed to by the assessee. A partner of the firm, Sri Manoharlal, had been assessed earlier on January 31, 1966, including his share income from the firm, whereas the firm itself was assessed on March 23, 1966. The assessee contended before the appellate authorities that since the partner had already been taxed on his share, the subsequent assessment of the firm was impermissible. The Appellate Assistant Commissioner and the Tribunal rejected this contention. They noted that the partner and the firm were assessed by different Income Tax Officers, and the partner's assessment order expressly stated that the return was accepted provisionally and would be rectified upon receipt of the share income report from the firm's assessing officer. Therefore, the Income Tax Officer had not exercised the option available under the 1922 Act to tax the partner instead of the firm. The High Court, however, answered the reference in favour of the assessee, relying solely on an earlier unreported decision in M/s. Hindustan Mill Stores Supply Company v. Commissioner of Income Tax, West Bengal, without providing its own reasoning. The Supreme Court examined the legal position under the 1922 Act, referring to its recent decision in Commissioner of Income Tax v. Atchaiah, which held that under the 1922 Act the Income Tax Officer had an option to tax either the partners or the firm, but once exercised, the same income could not be taxed in the other hands. The Court found that the facts clearly showed the option had not been exercised. The partner's assessment was provisional and subject to rectification; the firm's assessment order did not indicate any awareness of prior partner assessments; and the assessments were made by different Income Tax Officers. The Court held that the Tribunal's conclusion was sound and valid, and the High Court had not disturbed the facts found by the Tribunal. Accordingly, the appeal was allowed, the High Court judgment was set aside, and the reference question was answered in the affirmative, i.e., in favour of the Revenue and against the assessee, with no order as to costs.
Headnote
A) Income Tax - Assessment of Firm and Partners - Option under Section 3 of Indian Income Tax Act, 1922 - The Income Tax Officer had an option either to tax the partners of a firm or the firm with respect to the income of the firm, but once he exercised the option one way, he could not bring the same amount to tax in the hands of the other - In this case, the partner's assessment was completed earlier by a different Income Tax Officer and expressly stated that the returned income was accepted provisionally pending receipt of share income report from the firm's assessing officer; the firm's assessment order did not indicate any awareness of the partner's assessment. Hence, the option contemplated by Section 3 was not exercised, and the subsequent assessment of the firm as an unregistered firm was valid - Held that the Tribunal's conclusion was sound and valid; the High Court judgment was set aside and the question was answered in the affirmative in favour of the Revenue and against the assessee, with no costs. (Paras 1-3)
Issue of Consideration
Whether, on the facts and circumstances, the Tribunal was justified in holding that the assessment of the assessee as an unregistered firm for assessment year 1961-62 was proper, despite a partner having already been assessed on his share income from the firm?
Final Decision
Appeal allowed; judgment of the High Court set aside; the question referred answered in the affirmative, i.e., in favour of the Revenue and against the assessee; no costs.
Law Points
- Under Indian Income Tax Act
- 1922
- Income Tax Officer had an option to tax either partners of a firm or the firm with respect to firm income
- but once option exercised one way
- same income cannot be taxed in the hands of the other
- mere provisional assessment of a partner pending share income report did not amount to exercise of that option
- assessment on firm not invalid if option was not exercised
