BHARGAVA, J. - The question referred by the Income-tax Appellate Tribunal for our opinion is :
'Where an unregistered firm is assessed and income-tax is recovered from the partners in it, is the tax recovered from a partner in proportion to his share in its income to be regarded as tax paid by him or on his behalf or treated as paid on his behalf in excess of the amount with which he is properly chargeable under the Income-tax Act, so as to entitle him to a refund under section 48 (1) of the difference between the tax proportionate to his share and the tax to which his proportionate share is the income would have been chargeable if he had been assessed on that sum in his individual capacity ?'
The assessee was a partner in the firm Messrs. Raghunandan Prasad Manohar Lal, which was assessed for the assessment year 1945-46 as an unregistered firm. The income of the firm was assessed at Rs. 47,755 and the tax determined on this income was Rs. 15,588- 8-0. The amount of tax so determined was recovered from the three partners, one of whom was the assessee. The assessee had one- third share in the profits of the partnership firm. In the appeal before the Income-tax Appellate Tribunal, the assessee did not dispute that the firm, Messrs. Raghunandan Prasad Manohar Lal, being an unregistered firm, was a separate assessable entity and that its income was properly assessed and taxed in its hands. The contention raised before the Tribunal was that, though the firm was separate assessable entity, it was not a juristic person and that, in fact, the imposition of income-tax was on the income of each partner and the partners were the persons from whom the tax was realised, so that, in their individual assessments, the partners where entitled to claim refund in case it was found that, on taking into account their shares in the income of the partnership firm, the tax payable on that part of the income was less than the tax actually assessed and charged in the proceedings for assessment of the firm itself. It was on this contention that the Tribunal framed the question mentioned above and referred it for opinion to this court.
In answering the question referred to this court, the relevant provisions of the Income-tax Act, which have to be taken into account, are the charging section, viz., section 3, and the assessing section, viz., section 23. Under the charging section, a firm is dealt with as a separate assessable entity and tax can be charged on the income of an unregistered firm as a separate entity. In view of this charging section, when the Income-tax Officer determines the tax either under section 23 (3) or section 23 (4) of the Income-tax Act, he is required to determine the tax payable by a firm as a separate entity. In some cases, even the general rule has to be departed from where there is a special provision requiring a different method of determination of tax, such as the provisions contained in section 23 (5). In the case of a registered firm, the tax under section 23 (5) is not to be determined on the firm. On the other hand, only the income of the firm is to be assessed and then the proportionate share of the each partner is to be determined whereafter the proportionate share of each partner is added to his other income and assessment of tax is made on each individual partner on the basis of his total income including the income from the registered firm. There is the further provision that, even in the case of an unregistered firm, the Income-tax Officer can proceed in the same manner as in the case of a registered firm at his option. The option is to be exercised when the Income-tax Officer finds that it will be more advantageous to the revenue to proceed on the principles applicable to a registered firm. If the Income-tax Officer, in the case of an unregistered firm, however, does not choose to proceed under section 23 (5) of the Income-tax Act, the assessment of the firm has to be made in accordance with the general rule laid down in section 3 and 23 (3) of the Act. This is the procedure which was adopted in this case by the Income-tax Officer. He assessed the income of the firm as a separate entity as well as determined the tax payable on it and, treating the firm as an assessee, he even issued notice of demand under section 29 of the Act to the firm. As has been mentioned earlier, the correctness of this assessment has not been challenged by the assessee, so that the tax rightly assessed and demanded from the firm. The statement of the case mentions that the tax was actually realised from the partners and, since no question on that point has been referred to us, we may proceed on the assumption that this realisation of the tax from the partners was valid and permissible under law. Even though the tax was realised from the partners, the amounts received from them would have to be treated as amounts realised towards the tax payable by the firm and those realisation would, therefore, be realisation of tax payable by the firm in accordance with the law. There was thus no realisation from any partner which was illegal. No refund can, therefore, be claimed by any partner on the basis that any tax has been illegally realised from him.
Then there is the question whether a partner is entitled to claim that, in his personal assessment, account should be taken of his share of the income from the unregistered firm, which has already been taxed, as the income of a separate entity. Such a claim is barred by section 14 (2) (a) of the Income-tax Act. This provision of law clearly lays down that 'the tax shall not be payable by an assessee, if a partner of an unregistered firm, in respect of any portion of his share in the profits and gains of the firm computed in the manner laid down in clause (b) of sub-section (1) of section 16 on which the tax has already been paid by the firm.' Then there is the provision contained in section 16 (1) (b) of the Income-tax Act which shows that it is only for purposes of determining the rate at which the income of the partner from other sources has to be taxed that the share of the partner in the income assessed to tax in the hands of the firm as separate entity is to be taken into account. In this case, the facts contained in the statement of the case and the appellate orders of the Tribunal do not show that the assessee has become entitled to any refund because the tax on his individual income other than the income from this unregistered partnership firm has been charged at a rate higher than the rate which would be worked out and the refusal to include, in his income chargeable to income-tax, his share of income from the unregistered partnership firm was fully justified. In these circumstances, in this case, the whole amount of tax, which has been paid by the assessee or on his behalf, is the amount with which he was properly chargeable and there has been no excess realisation in excess of the amount properly chargeable from him. There is, therefore, no question of any refund being granted under section 48 (1) of the Income-tax Act.
We may, in this connection, mentioned a decision of the Madras High Court in Commissioner of Income-tax v. Arunachalam Chettiar which however, can be of no assistance in the present case because, at the time when that case was decided, the law was quite different from the law as if now stands. The definition of the word 'assessee' has been altered, sub-section (5) has been added to section 23 and there have been amendments in sections 29 and 48 of the Income-tax Act. Section 48, which came up for interpretation in that case, as it stood at that time was markedly different from section 48 as it now stands and the decision in that case, in view of the change of the language, is clearly inapplicable in the present case. It is, therefore, not necessary for us to discuss that the case in any detail. The principles, which govern the present case, have already been explained by us above and, on these principles, the question referred to us has to be answered in the negative and we answer it accordingly. The assessee shall pay the costs of the opposite party which we fix at Rs. 200 representing fee of learned counsel for the Department.
Question answered in the negative.