Case Note & Summary
The dispute arose out of assessment proceedings for the assessment year 1954-55 involving three individuals, M, P and G, who carried on business in several commodities. The Income-Tax Officer initially computed profits of Rs. 51,280 and brought to tax a one-third share in the hands of each of the three persons individually. Subsequently, the Officer called upon one of them to file a return of the income of the joint venture on the footing that the three constituted an unregistered firm. Despite objection from the assessees, the Officer completed the assessment under section 23(3) of the Income-Tax Act, 1922, in the status of an unregistered firm, computing the income at Rs. 80,925. The assessees appealed to the Appellate Assistant Commissioner, who dismissed the appeal. On further appeal, the Income Tax Appellate Tribunal held that the Income-Tax Officer had the option to assess the individual parties or the unregistered firm, and having chosen to assess them individually first, it was not open to the Officer to reassess the same income collectively in the hands of the three persons as an unregistered firm. The High Court, on a reference, confirmed the Tribunal's view. The Revenue appealed to the Supreme Court, contending that the first assessing officer was not informed that the three constituted an unregistered firm and therefore he could not be deemed to have exercised an option precluding him from assessing the entity that was in truth liable to tax. The Supreme Court held that the three persons could be assessed individually or collectively as an unregistered firm, but the Income-Tax Officer could not seek to assess one income twice. Once the Officer had assessed the income in the hands of the partners, he was precluded from making a second assessment on the same income in the status of an unregistered firm. Consequently, the appeal was dismissed and the decision of the Tribunal and High Court was upheld.
Headnote
A) Income Tax - Assessment of Unregistered Firm - Option to Assess Partners Individually - Income-Tax Act, 1922, Section 23(3) - Where the Income-Tax Officer had the option to assess the three partners individually or collectively as an unregistered firm, and he first assessed them individually, he could not thereafter assess the same income in the hands of the unregistered firm, as that would amount to double taxation of the same income. Held, the subsequent assessment in the status of an unregistered firm was invalid (Paras Not mentioned).
Issue of Consideration
Whether the Income-Tax Officer, having assessed the partners individually, could subsequently assess the same income in the status of an unregistered firm?
Final Decision
The Supreme Court held that the three persons could be assessed individually or collectively as an unregistered firm; the Income-Tax Officer could not assess the same income twice. Having assessed them individually first, the subsequent assessment as an unregistered firm was invalid. The appeal was dismissed.
Law Points
- Income-Tax Officer must choose between assessing partners individually or collectively as an unregistered firm
- double assessment of same income is not permissible
- option once exercised is binding
- assessment made in status of unregistered firm after individual assessment of partners is invalid
