1. In this reference under s. 256(1) of the I.T. Act, 1961, at the instance of the Revenue, the following two questions are referred :
'(1) Whether, on the facts and in the circumstances of the case, when the return of income had been filed by the firm and the assessment proceedings went on in the case of the firm, the assessment made in the status of an association of persons was legal ?'
'(2) Whether, on the facts and in the circumstances of the case, when there was no genuine firm but the return of income had been filed in the status of a firm, the assessment made in the status of an association of persons was legal ?'
2. The reference arises out of an order of the Tribunal passed in respect of assessment for the assessment years 1973-74 and 1974-75. The assessee is M/s. Associated Cement & Steel Agencies, Nagpur, which claimed to be a partnership firm constituted by the following four partners :
(1) Mrs. Nafisa w/o Tahirbhai, (2) Mrs. Nafisa w/o Shabir Hussain, (3) Mrs. Jumana w/o Zakiuddin and (4) Minor Rozat d/o Shabir Hussain.
3. These persons are closely related to partners in another firm, M/s. S. K. Fida Ali and Sultan Ali. The assessee filed a return of income for the partnership for registration under s. 185 of the I.T. Act, 1961. The ITO did not accept the genuineness of the firm and, therefore, refused to grant registration. At the same time, he made a protective assessment taxing the income in the said business in the status of an association of persons. Against these orders under s. 143(3) and s. 185(1)(b), the assessee filed an appeal before the AAC. While the order under s. 143(3) was confirmed subject to the change in the status, the appeal against the order under s. 185 was allowed. On an appeal filed by the Department the Income-tax Appellate Tribunal remanded the matter to the AAC for fresh hearing. After granting fresh hearing, the order passed earlier granting registration was confirmed. The Department again filed an appeal, which was pending when the reference was made. However, the copy of the order dated July 19, 1978, passed by the Tribunal has now been placed before us. The Tribunal upheld the order of the AAC.
4. For the assessment years 1973-74 and 1974-75 also the assessee filed returns in the status of a firm. Applications under s. 184(7) of the I.T. Act, 1961, requesting registration were also filed. Similar orders were passed once again by the ITO. The assessee filed appeals before the AAC contending that the assessment in the status of an association of persons was not legal. The Department filed appeals before the Tribunal, which held, vide a common order dated July 14, 1977, that if the return was submitted in the status of a firm, the assessment in the status of an association of persons was impermissible. This reference raised out of this decision.
5. That a 'firm' and and 'association of persons' are two different 'persons', and, indeed, independent units of assessment, cannot be disputed considering the scheme of the I.T. Act, 1961. The mode of their taxing and process (Sic) of liability are also different. Thus, even if the identity of the members of the alleged firm and the association of persons is established, there cannot be a valid assessment altering the status declared in the return. Mandatory requirements of issuing of a notice under s. 143 (2) before making assessment under s. 143(3) cannot be lost sight of. In this case, notice was given to the firm in relation to the return filed as firm, and no notice to the association of persons was issued. Therefore, even if it is correct to make assessment in certain status, such assessment cannot be made in relation to proceedings in an incorrect status. This, is our view, is the root of the controversy. Our opinion, therefore, is that the Tribunal was correct in quashing the assessment made by the ITO in the status of an association of persons under the circumstances.
6. However, it seems to us that in view of the decision of the Tribunal granting registration to the firm, the whole complexion of the controversy has changed and the points have become more or less academic. The order granting registration will operate not only for the assessment year 1972-73 but also for the subsequent periods in question in view of the application under s. 184 (7) and the Departmental circular dated July 29, 1964, bearing No. ZP (XXV-22) (F. NO. 3(16)-63/TPL) to which our attention was drawn by Shri Devani, the learned counsel for the assessee.
7. For all these reasons, question No. 1 is answered in the negative and in favour of the assessee. Question No. 2 needs no answer under the circumstances. The Department to bear the costs of the reference.