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India Army and Police Equipment Factory Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 559 of 1963
Judge
Reported in[1970]75ITR693(All)
ActsIncome Tax Act, 1922 - Sections 3 and 23(5)
AppellantIndia Army and Police Equipment Factory
RespondentCommissioner of Income-tax
Appellant AdvocateP.N. Pachauri, Adv.
Respondent AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Excerpt:
- - in coming to the conclusion that it is open to the income-tax officer to assess the partners of an unregistered firm as well as the firm itself, the tribunal relied on a decision of this court in the case of hazari ram mohan ram v. the allahabad high court, therefore, has clearly accepted the principle that the firm may be assessed even though earlier a partner's share in the firm has been assessed in his hands individually. the word 'or' underlined above has clearly been used in a disjunctive sense, which means that the tax is leviable either on the firm or its partners individually but not on both and, similarly, the charge may be imposed either on the association of persons or its members but not on both simultaneously......was that partner, kallu mal, having already been assessed in respect of the share income from the firm, the income-tax officer was not competent again to proceed to assess the firm itself. on behalf of the assessee, reliance was placed on a decision of this court in the case of soil prasad agarwat v.income-tax officer, [1959] 37 i.t.r. 107, but the appellate assistant commissioner held that the decision was distinguishable and he overruled the contention of the assessee. the assessee thereupon appealed to the appellate tribunal and raised the same question again. the tribunal also rejected the contention of the assessee. in coming to the conclusion that it is open to the income-tax officer to assess the partners of an unregistered firm as well as the firm itself, the tribunal relied on.....
Judgment:

T.P. Mukerjee, J.

1. This is a case stated under Section 66(1) of the Income-tax Act, 1922, hereinafter referred to as 'the Act', for the opinion of this court on the following question of law :

' Whether it is legal to assess an unregistered firm after assessing the share income from the firm in the hands of one of the partners ?'

2. The facts lie with a short compass. The assessee, the applicant before us, is an unregistered firm carrying on business, in the supply of stores to the military department on contract. There were two partners, Kallu Mal and J.P. Srivastava, whose shares where equal. The assessment of the firm for the assessment year 1959-60 was completed on September 17, I960, but before that one of the partners, namely, Kallu Mal, had already been assessed on his share income from the firm. The assessee appealed to the Appellate Assistant Commissioner against the assessment made by the Income-tax Officer on September 17, 1960, and one of the grounds raised in the appeal was that partner, Kallu Mal, having already been assessed in respect of the share income from the firm, the Income-tax Officer was not competent again to proceed to assess the firm itself. On behalf of the assessee, reliance was placed on a decision of this court in the case of Soil Prasad Agarwat v.Income-tax Officer, [1959] 37 I.T.R. 107, but the Appellate Assistant Commissioner held that the decision was distinguishable and he overruled the contention of the assessee. The assessee thereupon appealed to the Appellate Tribunal and raised the same question again. The Tribunal also rejected the contention of the assessee. In coming to the conclusion that it is open to the Income-tax Officer to assess the partners of an unregistered firm as well as the firm itself, the Tribunal relied on a decision of this court in the case of Hazari Ram Mohan Ram v. Commissioner of Income-tax, [1962] 46 I.T.R. 766. In this connection the Tribunal observed as follows:

'In Hazari Ram Mohan Ram v. Commissioner of Income-tax the Allahabad High Court has held that the partner of an unregistered firm may be assessed without making a separate assessment on the firm itself. Later on, if modification of the partner's assessment becomes necessary by subsequent assesment of the firm, action can be taken under Section 35{5) of the Act. The Allahabad High Court, therefore, has clearly accepted the principle that the firm may be assessed even though earlier a partner's share in the firm has been assessed in his hands individually. We, therefore, reject this contention of the assessee.'

3. At the instance of the applicant-firm the Tribunal has referred the question of law for the opinion of this court as set out above.

4. An answer to the question referred will be found in the clear language of Section 3 of the Act, which is the charging section. Section 3 runs as follows :

''Charge of income-tax.-- Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates 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 of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually.'

5. The charging section quoted above imposes tax on the total income of six different assessable entities, viz., (i) every individual, (ii) Hindu undivided family, (iii) company, (iv) a local authority, (v) every firm or the partners of the firm and (vi) other association of persons or the members of the association individually. The word 'or' underlined above has clearly been used in a disjunctive sense, which means that the tax is leviable either on the firm or its partners individually but not on both and, similarly, the charge may be imposed either on the association of persons or its members but not on both simultaneously. This has been made clear by the Supreme Court in the case of Commissioner of Income-tax v. Kanpur Coal Syndicate, 1964] 53 I.T.R. 225 (S.C) :

'The section (Section 3) expressly treats an association of persons and the individual members of association as two distinct and different assessable entities. On the term of the section the tax can be levied on either of the said two entities according to the provisions of the Act.'

6. This case was again referred to by the Supreme Court in its decision in the case of Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory, [1966] 60 I.T.R. 93, 97 (S.C.). At page 97, Shah J., speaking for the court, said ;

'The same principle would apply to the case of assessment of partners individually of an unregistered firm. The partners may be assessed individually or they may be assessed collectively in the statue of an unregistered firm : the Income-tax Officer cannot however seek to assess the one income twice--once in the hands of the partners and again in the hands of the unregistered firm.'

7. As already stated, the charging section contemplates assessment either of the firm or its partners or, if the assessee is an association of persons, assessment may be made on either the association or, in the alternative, on its members.

8. This court was perhaps the first to expound the clear implications of the charging section in respect of the assessment of an association and its members. In the case of Joti Prasad Agarwal v. Income-tax Officer, decided by a Bench of this court in 1958, it was laid down that once the income of an association has been charged to income-tax in the hands of the members individually, and the assessments were valid assessments, there could be no fresh assessment of income in the hands of the association. The decision of this court in Joti Prasad Agarwal's case ' was referred to with approval by the Bombay High Court in the case of Commissioner of Income-tax v. Murlidhar Jhawar and Puma Ginning and Pressing Factory, [1963] 48 I.T.R. 73 in which the question was whether it was legal to assess an unregistered firm when the two partners of the firm had already been assessed in respect of their shares of income from the partnership. The question was answered by the Bombay High Court in the negative. It was held that Section 3 gives an option to the department to tax the income of the firm either in the hands of the firm or in the hands of its partners in accordance with their respective shares. The Income-tax Officer has to make up his mind and proceed accordingly. Once the Income-tax Officer has fixed up the choice and proceeds to tax either the firm or its partners, it is no more open to him to proceed to assess the income of the other entity. A contention appears to have been raised in that case that Section 23(5) and Section 45(5) of the Act give a right to the department, by necessary implication, to assess the firm even when its partner and partners have already been assessed. The learned judges repelled the contention and observed that neither Section 23(5) nor Section 35(5) confers a right on the department to tax the income of the firm in the hands of the firm after it has been brought to tax in the hands of the partners of the firm. The decision of the Bombay High Court was affirmed by the Supreme Court in Commissioner of Income-tax., v. Murlidhar Jhawar and Puma Puma Ginning and Pressing Factory. Very recently, this court reaffirmed the same principle, which it had already laid down in the case of Joti Prasad Agarwal, in the case of Hari Om Company v. Commissioner of Income-tax, [1969] 71 I.T.R. 584, decided by a Bench of which my Lord the Chief Justice was a member. The dictum laid down by this court in Hazari Ram Mohan Ram wat misconstrued by the Appellate Assistant Commissioner. It does not lay down the principle that the partners of an unregistered firm and the firm itself are both liable to tax in respect of the income of the firm.

9. Our answer to the question referred by the Tribunal is in the negative and in favour of the assessee. The applicant will get Rs. 200 from the Commissioner of Income-tax as costs of this reference.


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