M. C. DESAI C.J. - The Income-tax Appellate Tribunal has under section 66(2) of the Income-tax Act submitted to this court a statement of the case; the questions formulated by it are :
'1. Whether the order imposing penalty under section 46(1) of the Act was legal
2. Whether the order of rectification passed by the Income-tax Officer under section 35 of the Act on March 31, 1948, was legal and valid ?'
The assessee, an individual, is a partner in two firms : (1) Ganesh Prasad Dalal (which for the sake of brevity will be known as firm 'G'), and (2) Bhojnagarwala Brothers (which for the sake of brevity will be known as firm 'B'). Now it is established that these are two distinct firms but at one time there was a dispute whether they were distinct firms, whether one of them was not a branch of the other. For the assessment year 1943-44, the assessee submitted a return showing separately his incomes from the partnership in the two firms. According to the return the two firms existed distinctly from each other. An Income-tax Officer assessed the firm 'G' on the income from the two firm holding that the so-called firm 'B' was not a distinct firm and was a mere branch of firm 'G'. He, therefore, added up the incomes from the two firms and assessed the firm 'G' on the aggregate. He then informed the Income-tax Officer, who had to assessee the assessee, of his share in the aggregate. Thereafter, the Income-tax Officer assessed the assessee on his share in the income from firm 'G' as communicated to him by the Income-tax Officer assessing the firm. He did not include in the assessment any income from firm 'B'. The return did show that the assessee had derived income from firm 'B' but he did not explain why he did not add that income to the income which the assessee had derived from firm 'G' according to the information communicated to him by the Income-tax Officer assessing the firm 'G'. He did not deal with that income at all. Subsequently, on an appeal against the assessment order against firm 'G', it was held that firm 'G' was distinct from firm 'B' and that firm 'G' could be assessed only on its own income. When the assessed income of firm 'G' was reduced by the Income-tax Officer on the basis of the appellate order, he communicated the fact to the Income-tax Officer assessing the assessee. The Income-tax Officer thereupon rectified the assessment order passed by him previously and assessed the assessee on the reduced income. Again, he did not take into consideration his income from firm 'B' and did not explain why he did not take it into consideration. Later an Income-tax Officer assessed firm 'B' on its income and informed the Income-tax Officer assessing the assessee of this fact. According to the assessment order passed against firm 'B' the assessees share in the income from it was higher than that shown by him in his return. The Income-tax Officer once more rectified the assessment order passed against the assessee and added to the income on which he had assessed him previously the income derived by him from firm 'B'. Thereafter, he issued a notice of demand for the excess income-tax. The assessee did not comply with the notice of demand and the Income-tax Officer imposed a penalty upon him. The assessee filed an appeal against the order imposing penalty on the ground that the assessment order passed a second time was illegal, because the procedure prescribed under section 34 had not been followed by the Income-tax Officer. The Tribunal dismissed his appeal. Then he applied for a statement of the case being submitted to this court and, on the Tribunals refusing to do so, he applied to this court for an order under section 66(2) and now the Tribunal has in compliance with this courts order submitted the statement containing the above facts.
An assessee, who is a partner in a firm, is to be assessed separately on his own total income and the firm is to be assessed separately on its own total income. The partner can be assessed even though the firm has not been assessed. There is no law that a partner cannot be assessed unless the firm has been assessed first and the partners share in the income from the firm has been ascertained during the assessment of the firm. Under section 35(5), as it stands now, if after a partner has been assessed the firm itself is assessed and it is found that the assessment order passed against the partner requires correction by including or deducting certain amount from the estimated income of the partner, the inclusion or subtraction of the amount is deemed to be a rectification of the assessment order passed against him. This provision makes it clear that a partner can be assessed even before the firm is assessed on its income. Section 35(5) was, however, added in 1953 and is not applicable in the instant case.
Section 34(1) is to the effect that if the Income-tax Officer has reason to believe that income chargeable to income-tax has escaped assessment for any year he may serve upon the assessee a notice containing certain requirements and proceed to assess or reassess him on the escaped income. Section 35(1) is to the effect that the Income-tax Officer may within a certain time of the assessment order passed by him 'on his own motion rectify any mistake apparent from the record...of the...assessment..' The circumstances in which an order under section 34(1) and an order under section 35(1) can be passed are not mutually exclusive and may overlap. There is nothing in the provisions of the two sections to suggest any conflict between them of such a nature that the provisions of one section will not apply if those of the other will apply. Since they can overlap it is possible for a case to be governed by both. Neither section lays down that if one of them applies the other shall not apply. Therefore, it cannot be said that if a case is governed by section 34(1) it may not be governed by section 35(1). If there is a mistake apparent from the record of assessment, it can be rectified under section 35(1) even though some income has escaped from assessment as a result of the mistake. Therefore, rectification of a mistake apparent can be ordered by an Income-tax Officer even if some income had escaped assessment and he could accomplish his object by proceeding under section 34(1) instead.
It is not known whether the Income-tax Officer who assessed firm 'G' was the same officer who assessed the assessee. Because there is nothing on the record to show that he was the same officer, it cannot be said that the Income-tax Officer when passing the assessment order against the assessee knew that the income on which he assessed him included income from both the firms. Only the Income-tax Officer who assessed firm 'G' knew that in the assessable income he had included the incomes of firms 'B' and 'G' both, but this fact was not intended to be, and is not stated to have been conveyed by him to the Income-tax Officer assessing the assessee. Since he took the aggregate of the incomes to be the income of firm 'G', he could have informed the other Income-tax Officer only that the income was of firm 'G'. So, though the income included incomes from both the firms, the Income-tax Officer assessing the assessee had to take it to be the income from firm 'G' only and ought to have added to it the income from firm 'B', of which the assessee was a member according to the return itself. His failure to add it is not explained by anything on the record and must be attributed to an oversight on his part. In other words, there was a mistake apparent on the record of the assessment of the assessee whom the first assessment order was passed. When he rectified the assessment order on the assessable income of firm 'G' being reduced, he continued the mistake by ignoring the assessees income from the other firm. Since he had assessed him only on the income communicated to him by the Income-tax Officer, he rectified it only to the extent that the further communication from the Income-tax Officer required rectification. As in the first assessment order he had not added anything as income from firm 'B', at the time of the first rectification also, he did not add anything as income from firm 'B'. He might not have even known that the reduction in the income of firm 'G' was on account of the income of firm 'B' being separated from it. The only information that he was entitled to get from the other Income-tax Officer was that the assessees income from firm 'G' was reduced by so much; he was not entitled to be informed of the reason for the reduction, viz., the separation of the income of firm 'B' from that of firm 'G'. Consequently, the mistake apparent on the record of the assessment continued even after the first rectification and was certainly not removed by it. He did not deal at all with the questions of the assessees income from firm 'B' and whether it should be added to his income from firm 'G'. When subsequently the Income-tax Officer assessing firm 'B' informed him of the assessees share in its income, he discovered the mistake in the assessment order and the first rectification and acquired jurisdiction under section 35(1) to rectify the assessment order once more. He was not deprived of the jurisdiction by the mere fact that he had rectified the assessment order once previously. The previous rectification did not at all touch the apparent mistake rectified by him subsequently. Rectification of one apparent mistake under section 35(1) does not prevent subsequent rectification of another apparent mistake under the same provision. It was immaterial either that the assessees return itself had shown that he derived income from both the firms or that the income shown by him as derived from firm 'B' was less than the income communicated to the assessing authority by the Income-tax Officer assessing firm 'B' as the income derived by the assessee from it. Neither of these facts converted the omission to include the income from firm 'B' in the assessable income an escape of income from assessment or removed it from the category of mistakes apparent on the record. As a matter of fact, it was because of the return itself that it could be said that the omission to include any income from firm 'B' in the assessees assessable income was a mistake apparent from the record; the record itself showed that the assessee derived some income from firm 'B' and yet it was not included in his assessable income. This apparent mistake continued right up to the moment of the second rectification and justified it.
Question No. 2 is, therefore, answered in the affirmative.
As question No. 2 is answered in the affirmative, question No. 1 also is answered in the affirmative. It was not shown it us that there was any illegality in the order imposing the penalty it the second rectification was legal and valid.
We direct that copies of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal and the Commissioner of Income-tax as required by section 66(6) of the Act. We further direct that the assessee shall pay to the Commissioner of Income-tax his costs of this reference which we assess at Rs. 200. Counsels fee is assessed at Rs. 200.
Questions answered in the affirmative.